Guests: Nathan Allman, CEO of Ondo Finance; Ian De Bode, Chief Strategy Officer of Ondo Finance

Hosts: Ryan & David

Podcast: Bankless

Original Title: Tokenized Stocks: The $100 Trillion Onchain Shift

When: September 11

Ryan and David engaged in an in-depth discussion with Nathan Allman and Ian De Bode from Ondo Finance about the evolution from stablecoins to tokenized Treasury bonds, and then to tokenized stocks. They analyzed why Ondo Finance's unique wrapper model is positioned to become an industry leader, and how blockchain technology enables round-the-clock market trading, including 24/5 primary markets and 24/7 secondary markets. Additionally, they explored how DeFi's composability facilitates liquidity and ensures fair pricing for asset trading. Ethereum and Ondo Finance are driving an on-chain migration of Real World Assets (RWAs) worth up to $100 trillion, which will become an undeniable trend in the financial sector.

Key Takeaways

• Tokenized assets follow the same explosive growth as stablecoins - slow preparation followed by rapid acceleration when infrastructure aligns. Tokenized Treasuries reached $7+ billion in just two years compared to stablecoins taking much longer.

• The "wrapper model" (debt securities backed by underlying assets) beats native tokenization because it enables permissionless transferability essential for DeFi while providing better investor protections.

• Tokenized stocks trading 24/5 (and 24/7 on secondary markets) creates weekend price discovery and drives traditional market makers to build round-the-clock operations.

• The future involves purpose-built L1s like Ondo Chain for specific use cases, with omnichain assets seamlessly moving between specialized chains rather than everything settling on Ethereum.

• New investors opening accounts by 2030 will expect blockchain-native experiences with 24/7 trading across all asset classes as the standard, not the exception.

Is the business thriving?

Ryan: Is Business booming? Cuz we got about 300 billion, I think, in real world assets on chain at the time of recording. All right, it seems like it's going kind of well. But put in your words, is business booming? Are we doing this thing? Are we getting the real world assets on? Ian?

Ian: I think so. I mean, I don't almost like to anchor on 300 billion, although it is getting significant. But if you compare it to true tradifi scale, 300 billion is still rather small, but the growth of things is very significant. I joined Ondo about 18 months ago. And when I joined, I think tokenized Treasuries were maybe $1 billion, Nate, if that. Now we've crossed seven and we're still growing pretty aggressively. So the growth is definitely very encouraging.

Nathan: Yeah, I mean, our thing's booming. I think you could look at this from a couple of lenses, like from a product adoption perspective, things are booming with stable coins today, like stable coins across the chasm, you know, they're reaching mainstream adoption. Lots of, you know, traditional big tech companies, you know, are deep in the weeds of, you know, their integration outs and, you know, they make up the overwhelming, you know, majority of that, you know, 300 billion in real world assets on chain outside of stable coins. I think we're really just starting to scratch the surface. I mean, tokenized Treasuries and, you know, I guess some private credit products are, you know, the bulk of what remains. But I, you know, I think we're just starting to, you know, see meaningful growth there. You know, we launched our tokenized equities products recently and you know things are even more nascent there. But certainly from a market interest perspective, things are moving. I mean, asset managers, banks, regulators, they all see the inevitability and you know, they're writing on the wall of the long term potential of tokenized securities. And so there's certainly a ton that's being done behind the scenes and I think will, you know, lead to more product growth outside of stable coins in the future.

Are RWAs (Real World Assets) inevitable?

David: Nathan, you said the word inevitability. Can you just actually walk us through why? Cuz I think as crypto natives, we all kind of understand like, oh yeah, blockchain technology is the future. And that Assumption has just been baked into. We always.

Ryan: On PS.

David: We always talk about this. We've always known that it's inevitable, but maybe we could talk about why it's inevitable. Maybe to just start off this conversation. Why do we assume that real world assets are coming on chain?

Nathan: Well, I think stable coins have really shown the potential, right? I mean, there is now a blueprint that we can follow for how to make assets globally accessible, you know, permission list, transferable, peer to peer. And you know, the world outside of crypto is starting to appreciate that potential and that power in the context of money, the current pain points to solve in the context of securities are even bigger in a lot of regards, right? I mean, existing security settlement processes are even more regionally fragmented, cumbersome and slow, right? Every region for the most part has set up its own, you know, set so called central securities depository. It's the, you know, the DTC in the US and Europe, there's Giro, Clear Stream, Lux, CSD, you know, Asia has a whole bunch of them. And, you know, moving securities from one of these CSTs to another, you know, takes days, if not weeks, you know, and I think, you know, there's obviously similar friction points, you know, in the traffic system around moving money. But, you know, I think we're very excited about, you know, taking what stable kinds of job for money and doing that for, you know, the rest of securities.

Ian: It's funny cuz with a stable coin, I mean, stable Quinn is just tokenized cash, right? But we were used to having that cash in our bank account, but at least you could very easily send it to other people. Yet still a stable coin is a meaningful improvement over cash cuz you. And now you can do that 247 globally, and you can use it in a smart contract with stocks and Etfs, Treasuries and the like. That's not even the case. I mean, you can technically move it from brokerage to brokerage, but that process is way more difficult and just moving cash between platforms. So tonight's point, I think the leap in enhancement and efficiency and better user experience that we can get by tokenizing stock, CTF, Treasuries and the like is even so much greater for those assets than it was for cash. Yet people right now are super excited about the concept of a stable coin already, rightfully so. But the quantum leap for other types of assets, I think, is gonna be even greater.

Ryan: I think people don't understand actually how much tradefi kind of sucks until they use it a lot. Like a lot of crypto natives, actually, I find myself someone in this camp of like, I'm learning about finance by route of crypto, right? And so you see all these advancements and people complain about the UX of crypto and then you go back to your brokerage and tradefi. I was recently, Ian, to your point, I was trying to move some timer accounts I had from E Trade over to Fidelity. Oh my God, what a process. Okay, the amount of people, like I just, I click some buttons, fill out paperwork. I think like they were probably faxing things around in back office. Like it's that difficult. Simple things like.

Ian: Face right now. But.

Ryan: You should, you gotta try this stuff. It's fun. It's like going back in time. You can even in your brokerage. David, I'd like you to. I'd like to see you do this. Like, do you have probably a brokerage, right? You can't swap a security, one security for another. You can't just do that trade. Okay, first you have to go back to cash. Yeah, I think you're talking, but you're on me. I.

David: Am talking. Yeah, I was shocked. Was this so sounds that are coming out of my mouth.

Ryan: So it's very silly.

Nathan: You have to go back to cash and then you have to wait for the cash to settle. Yeah, that's right.

Ryan: You have to wait for the cash to settle.

Nathan: That's ridiculous. Practically speaking, most folks use margin accounts to get away from that problem so that they can, you know, by, without having to wait for the cash to settle. But if you do that, then you're effectively lending out all of your securities and you take on counterparty risk to the broker dealer that you're doing that at. And sure, like there's, you know, some SIPC insurance, but that's limited. So I mean.

Ryan: Stuff like this is absolutely insane. You guys, why I appreciate you guys coming here is you both have tradefi experience, right? So Ian, you're ex Mckinsey, I believe, right? And you're doing digital assets there. And Nathan, you're at Goldman. And so you're kind of bridging into crypto here.

Tokenized Treasuries

Ryan: But when people talk about real world assets, I really want to give bankless listeners a sense for what we're talking about case in case they don't understand. So we're definitely talking about stable coins. Everyone knows about that talk. They're the most mature real world asset on Shane right now. So mature that we even have legislation.

So the government has just been like, oh, this is great. We support this. And secretary Besant is saying, we want to get 3 trillion in stable coins on chain. Okay, so it's fully blessed now by the US government. That was the genius Bill legislation that just happened.

So that naturally is going to be the most mature, stable coin asset. Got about 270 billion in stable coins. But let's talk about some of these other categories. And we're gonna get to equity cuz I know you guys have just launched something really cool on the tokenized stocks world and the tokenized equities world. But if we go down from stable coins, the next largest asset class it feels like is US Treasuries.

I know Ando has some offerings in US Treasuries. Actually, just prior to this, I was looking at, I think maybe somebody from your team notified me and I saw this Fidelity launched money market accounts on Ethereum on chain. They're like, I don't know, I didn't hear about this. They still launched this last week. Okay.

And Fidelity for people don't know, has about 1.3 trillion in money markets accounts. Okay, they're the largest. What's the money market account? That's tradefi speak for. It's Treasuries. It's stable coins with the yield wrapper so you get your 4% yield, right? That's what a money market is. Don't hold dollars, people. Hold money markets if you can in any of your investing accounts, of course, cuz you don't wanna give up that yield to a bank anyway. That's what a money market is.

And they tokenize their money markets and put them on chain. This is Fidelity. There's $7 trillion worth of money markets in tradefi. That's why you guys were laughing earlier and you're saying, oh, yeah, it's kind of cute. We're at 300 billion, 7 trillion in just meant money markets.

That's what we're talking about when we talk about this category of US Treasuries. That includes short duration Treasuries, long duration Treasuries. The short duration is gonna be more the money market. I think I'm speaking correctly in terms of trad file lingo. You guys correct me. What's. Treasuries on Shane, it is now about 7.4 billion. How big is the Treasury opportunity and what are you guys doing in that space?

Ian: Yeah, I'm happy to start with that one. You are correct. Fidelity launching on Ethereum. Nolis is kind of a big deal. Money market funds or tokenized Treasuries are an incredibly popular product in traditional finance, right to your point, don't keep your cash, reset a bank, put it into a money market fund so that you can earn yield on it.

And in part, the reason why Ondo started with tokenized Treasuries is exactly because of that. We looked at stable coins are amazing products with clear product market fit, but they're not perfect, right? They didn't really offer very good investor protections. Some of that has been resolved now with the new legislation, but not every stable coin is like that. And the other big downside is that they don't offer yield.

And so what better way to kind of address that problem by tokenizing Treasuries itself so that when users were holding this particular asset, they would have better investor protections and they would get yield paid out on a daily basis. So Hondo started tokenizing Treasuries back in 2023. Innate, if I'm not mistaken, with ousg, which was the, at the time, a pretty meaningful innovation cuz it was the first time that a tokenized Treasury fund could actually be transferred between participants on an allow list.

That model was then later copied by the Blackrock middle fund, but the benefit of that structure was that you could actually transfer it even into a smart contract. So then Ondo also launched the flux finance protocol, where essentially you could use ousgs collateral and start tapping into essentially a repo use case. Cuz that's the other thing in tradefi that is incredibly massive. Most of Trout File liquidity runs on Treasuries and repo markets for overnight financing.

So that was really the beginning of us tapping into these traditional financial use cases and trying to better product on chain with good investor protections on that paid out yield. But now recently, if you've expanded that mission and really focus on stocks and ETS that I'm sure we'll talk about later.

But it's interesting to see how stable coins, I mean, right now, tokenize Treasuries are at seven and a half billion, give or take is what you showed. I think it took tokenize Treasuries two years, give or take, to get there when you look at how long it took stable coins to get to the 7 billion number, it is much longer.

So it's very interesting to see how people started with stable coins that obviously is now an incredible large pool of liquidity and capital. But people have kind of understand, understood now that if stable coin really is just exposure to tokenized cash, they then look at a Treasury and say, oh, wait, if I want to earn yield, maybe I should buy a tokenized Treasury asset. And the adoption of that as an asset class has happened a lot faster than a stable coin. And we think the logical next step now obviously used to do the same thing for stocks and ETS, which hopefully in terms of adoption, we'll see another acceleration.

Ryan: Nate's gonna jump in here in a second. But Ian, before I let you off that the, you said repo markets. Okay, that's something in trap. I actually I don't quite understand yet. You said that's a big deal. You know, Treasuries are used for repo markets. What, what's a, like, what's a repo market? What's the one, one of on that?

Ian: No, I'm sure enable do a better job at articulating that than me. But the concept is essentially a lot of banks, you hold a lot of their assets in these actual Treasuries and they hold them at custodians like b and I, Melon, JP. Morgan and the like. And oftentimes, there are liquidity financing needs that happen overnight or people that want to earn yield on excess cash, they can essentially swap them into a Treasury or the other way around.

So Treasury is the most liquid collateral asset that is being used that can typically be pledged in overnight, even at the Fed itself, where you can then earn a yield on it whenever you want. So Treasuries and cash are kind of like the lifeline of the traditional financial ecosystem, where you can very easily swap one for the other, even directly at the fit.

Tokenization Roadmap

David: I'm gonna do this notion that we are as an industry back in like 2021,2022, Ryan and I would use this line all the time is like crypto is speed running the history of money and finance. And I'm getting this notion that we are doing something similar with like the financial tech stack or just like the same thing, whereas we're starting with dollars, just inert basic dollars, federal deposits, right, is like the very bottom of the stack.

And like the next highest thing is the repo market. And on top of that are people that hold Treasuries, short term Treasuries, and then maybe there's like long term Treasuries on top of that. And then we start to get into like equity or like maybe we get into like corporate bonds, corporate debt, and then at some point we get up to higher and higher into equity queries. Market, that's how I'm imagining things.

Maybe is may, is that a David Brain thing or is that it actually like somewhat coherent in terms of like how you guys understand the stratification of tradefi and also how crypto is starting to build out its own parallel version of that. Is that, am I under something here?

Ian: I think so. Nate, do you wanna articulate a little bit how you've kind of seen it go from cash treasuries to equities and why we focus on those asset classes in the first place? Cuz when people hear tokenization, sometimes they talk about private credit and real estate and PE and all these other asset classes.

But one of the reasons I joined Ondo is because Nate had to vision that's not how it was gonna play out. Who's gonna go stable coins to Treasuries to equities with good reason. So I actually think that's quite helpful to just articulate a little bit as to why that's gonna be the case.

David: Yeah, they think give it to us.

Nathan: I think it's a totally fair observation as well. But you know, we're recreating financial rails with some, you know, big advantages that maybe didn't exist the first time a lot of these things were created. I mean, if you think about commercial banking like it is really a historical artifact that you have these institutions that had to both, you know, candle payments, savings and lending altogether, right.

And money was sort of created in the process of lending and then, you know, through writing paper checks. And that was sort of the OG payment system. And, you know, now with technology, with, you know, certainly bitcoin, you know, creating the, this ability to hold value in a digital scarce manner, you know, we're able to really decouple savings, payment and lending.

You know, that's been a trend that's been happening to some degree outside of crypto for a while with the emergence of the so called shadow banking system and all these like specialty non bank lenders taking you know, over more and more of commercial lending from banks. And I think crypto technology is a huge accelerant of that.

So certainly, we're saying that with stable clients and then you increasingly with other securities. So kind of build on what Ian was saying. I mean, we started with Treasuries really because there was a clear pressing market need at the time in early 2023 with, you know, 150 billion plus unstable coins not earning any yield. So that was a very simple value prop.

I think the value prop for tokenize securities more broadly, especially in the United States where investors already have access to these assets is a little bit more complicated. You know, I think it requires the emergence of an ecosystem, particularly of financial applications of things like borrowing, which practically speaking is, you know, effectively repo, you know, trading, you know, maybe derivatives and other arrangements that accept these sorts of assets as collateral.

And so we are working to build out much of that ecosystem. As Ian mentioned, you know, we help build Flux Finance, such as a sort of a proof of concept for how you can use tokenize securities as collateral in by, you know, defi like arrangements. And so, you know, as we build out that ecosystem more and more, I think the value prop will be more clear in the United States.

But for now, we're very excited by, you know, the very simple pitch of making very liquid public US securities more accessible to investors all around the world. And, you know, Turkey, Latin America, Southeast Asia, in, you know, very small truck sizes for folks who don't have US brokerage access today, which is the majority of the world and you know much of the kind of early stable coin investors.

So we've always viewed tokenize Treasuries as you know, a wedge a beach ad into broader by, you know, tokenize securities capabilities. It's become, you know, a very competitive, almost commoditize space. And you know, we really see tokenized Treasuries for us as, you know, synergistic with what we do more broadly. You know, we can get into what some of those synergies are when we start talking about global markets in a little bit.

Types of Tokenized Treasuries

Ryan: So for people who haven't maybe used tokenized securities, but I'm sure all Bank List listeners are basically familiar or tokenized treasury. Specifically L bank listeners are familiar with stable coins, right? Stable coins are like, you know, super easy. You use them on exchange, you keep them in your crypto wallet. US Treasuries, Unchain Treasuries, and what you're talking about with Ondo or even Biddle, they are an asset that is a security. And so it's not quite as easy as going to a crypto Waller in exchange and just, you know, flip your, you're swapping assets, you're using the stable coin for something I've used on do before. It's kind of cool.

So for the crypto native, you basically you go to the interface, you connect your wallet, you have some sort of a stable coin. Let's say you have USDC inside of your wallet, and I believe you have to fill out some paperwork. I don't recall doing this. I'm sure I did one point in time. I have to fill out some paperwork first because it's a security. And so there's some things that need to be checked due to regulatory compliance. But I can do this in my crypto wallet and I can essentially use my USDC and Mint the Treasury.

Okay, and this all happens kind of on Shane and then I have the Treasury. I'm holding the Treasury asset. Why do I want the Treasury asset rather than the stable coins? Because I'm getting the Treasury yield, of course. And then I can, so I can, I've just minted my Treasury asset. If I want to swap back to USDC, I can then do that later. But I do have to get kind of like approved by the platform.

There is some compliance I have to go through. This is really an early example of putting a security on chain. And that's kind of cool, but it's not free. You can't do whatever you want as you can with stable coins and defy with these tokenized treasury types of assets. Did I describe this correctly?

Ian: It depends. He's, I think the short of it, there's two versions of a token ice for the Treasury product. One is we have ousg that is very similar to Biddle and some of these other products that have just been issued that very much operates the same way as you just described. You have to onboard with us, and you can only hold that asset if you are onboarded with us because that asset operates on an allow list. If you want to transfer it to anyone that fixes this address on this allow list, yes or no. And if it is not, then a transfer is canceled.

There are other asset implementations such as usdy that are slightly more stable coin like. So with that one, if you want to mint and burn it directly from us, you always have to onboard. That obviously has, you know, compliance reasons as you highlighted, is very similar to anyone who wants to mint the USDC directly from circle needs to circle Mint account. It's the same thing for a stable coin, but the USDY asset is issued like a permissionless bear instrument, so on secondary market once you have acquired that asset. Ryan, in certain compliance periods, our past, you are free to do with that asset what you wish, right? You can also, you can put transferred to through a 3 wallet, a different wallet can transfer to a crypto exchange that they supported. Those assets are permissionless pair of instruments, but they do still pay out yield on a daily basis.

Ryan: That's very cool and the SEC was fine with all that. That's okay. We can do this. Now.

Ian: These are issued to non US investors in the primary market.

Ryan: That's why I couldn't get my hands on that. Okay. Okay.

David: So in contrast, the Black Rock Biddle Fund, you need to be KYC and added to the whitelist, the contract whitelist for the Blackrock Biddle fund. So there is no permissionless transferring of that fund to anyone, which makes this one unique.

Ian: Correct? So Biddle in our fund, ousg, very permissioned Wallgarden on whatever network it is issued on. USTY is different in that it is a permissionless bear asset, but it can only be issued to non US investors in the primary market.

David: How do you know that they are non US investors?

Ian: They have to onboard with us.

David: Oh, do they KYC with you?

Ian: Okay. Yes. Just like with a Circle Mint account, you have to get an account circle.

David: Right? But I thought I heard you say that the usdy contract address was permissionless, correct?

Ian: In the secondary market, post to compliance period, you can send it wherever you want.

David: So, okay, so I can go find someone. I can me not whitelisted. All right. Tell us a technically a US citizen. I could go find someone who has it and they can send it to me.

Ian: I mean, what you just articulated is essentially a peer to peer transfer. And yeah, they would be allowed what the benefit ultimately, the benefit truly of making these assets permissionless, quite frankly, is that they work in Defi. We fundamentally believe that it is very hard to get a defi ecosystem going when your asset is permissioned. Totally agree. So by making these assets permission less, they can be integrated into a wide variety of defi protocols, just like with stable coins. And that really gets, that makes them embedded and entrenched into the defi emy in a way that with a permission asset, you could not.

David: So as long as the primary, the, when you say primary market, that means, I'm assuming that means that the win ondo gives the tokens to their first owner after being minted. That first owner is primary and must not be united citizen. And after that, whatever happens after that is not your concern.

Nathan: US persons are not allowed to hold usdy. There's a lot of legal and regulatory nuance here. But the products are fundamentally issued not in registered form, meaning that all investors do not need to be onboarded with the issuer or known to the issuer, and so there are fundamental limits to the assurance, ability to police what happens in secondary markets.

This is sort of a modern day equivalent to old school, you know, bear certificated securities where, you know, an issuer would, you know, have as the authoritative record of ownership some piece of paper, you know, that might be shipped offshore by a US issuer to non US investors, you know, and if they want to redeem the coupon or, you know, principal value, you know, they need to return that piece of paper. Crypto technology allows us to have that piece of paper, you know, be digital.

And it actually provides us with a lot advantages from a regulatory compliance perspective, cuz we still do have the ability, you know, to freeze, blacklist, do the types of things that stable coin issuers do. So we certainly do you our part to monitor for flowback into the United States to the extent that we can.

And, you know, to not have selling and marketing efforts for, you know, I guess products in the United States, but they are not, you know, registered for products. So they have certain accessibility and, you know, friction advantages over registered form products like, you know, what Ryan was describing earlier, where there's pretty cumbersome onboarding paperwork processes.

What obstacles does the United States face?

Ryan: I mean, what you're describing is kind of what we all want, of course. And maybe this gets into, I know we're gonna talk about tokenized equities and tokenized stocks in a minute, but since we're talking about tokenize Treasuries and the perspective of securities, when I go view, you know, on those tokenized securities, I'm in the US, so I'm hit with a G Geo blocker that basically says, sorry, Ryan, you're a US citizen. You're, you can't access your own country's capital markets on chain. You can't do it. I know that's not your fault. If you guys could, you'd open it to everybody. You'd have, there's all available in Defi.

This is also the case with tokenized Treasuries. Why is that the case? All right, I understand a little bit why it was the case back in 2023,2024. You know, the crypto native story is like Gary Gensler was there and he really didn't like crypto. He really didn't like us.

Now we have a sec that has a toke. Is it a crypto task force? Like they have something called Project Crypto. We know Hester Purse. We've had her on bankless many times. She's an architect of this. They could not be more friendly. They, it seems like, are actually interested in moving American capital markets to crypto and modernizing the tradefi stack for the 21st century. That's amazing. We've never had that before. Maybe it's too early, but I'm asking why can't US citizens have tokenized Treasuries and tokenize stocks on chain? Why is it always everybody else in Europe, another part of the world, why don't we get this?

Nathan: I don't think we will be blocking us persons for too much longer. For what it's worth, I mean, these things just take time. It really hasn't been very long at all, you know, in the scale of, you know, getting new regulatory actions, approvals, you know, the SECs indicated very publicly, you know, as, you know, openness, you know, to engage with issuers on multiple different models for tokenization in the US and you know, we've certainly been a part of those discussions and you know expect to see some of those different models, you know, in the hopefully not too distant future.

Ryan: But guys, do we need an active Congress? Cuz I'd, I don't wanna wait for an active Congress. It took a lot of like work to get the stable coin act through. Is this something that CC can just.

Nathan: Pretty clearly don't generally? Okay.

Ryan: Yeah, we don't need an act of Congress. So the existing regulatory bodies could just go through a process and, you know, green light this so we can have these tokenized securities in the US, you know, when they go through their process, right? This can happen the next six months, it could happen in the next 12 months.

Nathan: And to be clear, there are tokenized securities in the US today. I mean, no USG, you know, our permission tokenize Treasuries product, you know what you were talking about earlier, Ryan, like that is available in the US, but only to accretive investors.

There are other tokenize securities available in the US to retail. I mean, the Wisdom Tree tokenize funds, the Franklin Templeton tokenize funds are available to us retail. Not that long ago, those tokens were very uninteresting and that they were like non authoritative receipts of ownership. You couldn't do anything with those. Asset managers have been making really great progress to get their tokens to be more useful, and you can actually self custody them now. You know, you can send them between different allow listed wallets to affect changes in ownership. So there have been really exciting developments, some of which were even, you know, under the last sec towards, you know, making those products available in the US, though, you know, that progress is very much continuing where exemptive relief for clarity is generally needed.

Isn't even around how to tokenize securities in the US, though there are, you know, some points of clarity that could be beneficial there, but it's more so around how distributors can get involved in, you know, reselling or making these sorts of assets available around questions like what qualifies as a distributor. A broker dealer, right? Is a wallet or a front end for, you know, a decks, you know, is that a distributor. So, you know, I think the part of why things have been slower in the US, frankly, is just like the retail value prop is a little bit less clear or is gonna take more time to develop especially. And that's also where there is a little bit of regulatory uncertainty. But you know, all of that is certainly coming. The retail.

Ryan: Value prop being less clear because what we already have.

Nathan: Because US retailers already have, right?

Ryan: But they suck, Nate. They suck. What we're saying is they suck.

Nathan: But if at least you're trying to like buy and hold, right? And you're not trying to like shop around for different margin rates and, you know, use these assets as collateral for derivatives positions. Like if you're just, you know, really basic retail investor, like Robin Hood is a great solution. So, you know, I think there, in order to really unlock the benefits, you need more of an ecosystem and the involvement of that ecosystem is where we do need some regulatory clarity.

Tokenized stocks

Ryan: Since you mentioned Robin Hood, of course, is bringing some of their stocks on chain. So they have about a hundred and fifty, hundred and sixty billion in not on chain equities. And so the prospect of them coming on chain is a pretty big deal. They're launching in Ethereum layer 2. Ondo, you guys have just launched a tokenized stock offering as well. Now of course, to disappoint US listeners, this is only available outside of the US, so it'll stipulate. But as Nate and Ian said, they are bullish that this is coming to America sometime soon. Let's talk about that category.

So we talked about stable coins, 270 billion. We've talked about Treasuries, about 10 billion, tokenized equities, tokenize stocks on chain. They are the smallest so far, the most nascent. This is a tiny market on Shane. So at this point, the time of recording, there's about 400 million in tokenize stocks on chain. And some of these are dominated by some silly things that just look more like experiment tool type projects, right? There's something I think on the what chain, I don't know, some chain. It's just like one stock. It's like not very interesting. But there have been experiments that seem a lot more like what you might find in a brokerage. So Xbox is one of them. Denari, we talk to the founder. Now, you guys launch something on Ondo, and I think you've launched with over 100 different assets. Let's talk about where tokenized stocks are right now and what you guys have launched.

Ian: Yeah, we're very excited to launch around the Global Markets platform last week. But as you rightfully point out, it's not the first one, right? We had a very large Ramadan announcement in June 30th, I believe, same day Xbox launched. So clearly there's a lot of appetite to figure out how to tokenize stocks in ETS, which we very much welcome cuz we didn't proponent until that category for a while. The thing when you look at the tokenize stocks category, the two things you just wanna look at, No. 1, is this permissionless bear instrument or not? Or is it a Walt Garden, right? That kind of matters.

The second one is what is the liquidity available on these assets and what is the price at which I can buy them in size and sell them size. Those are the two key things that you wanna look at. And I think for both of those dimensions, they're very important. On the global markets is the first platform where the assets are both permissionless, and you can buy these things in size at the right price, just the price that you can get in your normal brokerage account for buying and selling instantly. So it does represent a pretty meaningful innovation.

When you look at the Robin Hood offering, for example, I'm sure you can buy. By, in size at the right price. But it is a walled garden approach, right? You can only, Robin Hood is only offering this to their own users and you cannot transfer these assets off platform.

The X stocks example is a, is the most known example, I think, of the permissionless implementation. These assets are freely tradable on secondary markets, but the problems with the X stocks model is that they really rely on these on chain inventory pools, these decks pools that trade in and out of and the liquidity and pricing available in those pools is pretty terrible, quite frankly. So a lot of people have bought, let's say, you know, Tesla X at the wrong price. It's not the price of the on July and you can't just exit it in size because the slippage you would get on an order like that is incredibly meaningful. So a lot of people, I think, were very excited about the prospect of these permissionless stocks, but the implementation was such that the pricing of it was unreliable and you can trade in and out in size. So on the global markets does represent the first one where both are present, and that is the true innovation that we launched last week.

Liquidity of tokenized stocks

David: I want to explore both of those because both of them are just unique problems and of themselves, one being the permissionlessness and then second being the liquidity. I think the liquidity thing is smaller of the two. So let's start there. And then I have a bunch of questions about the permission list after that. Isn't that just a problem, though, of a nascent market as in tradefi? There are market makers, there are like just, you know, that's where all the bids and asks are. And on day 1 or week 1 or year one of unchain tokenized securities, wouldn't you expect that to just be a very illiquid environment that would become more liquid as more buyers come online, more supply comes online and market makers all kind of come online? Or also a question, the question is it that and then also how are you guys bringing liquidity? What's that mechanism like?

Nathan: I mean, I think it's true that the market is nascent and can and may become more liquid over time, but there are still very fundamental differences between the model we're pioneering with global markets and the Xbox model that lead to very different outcomes in terms of how, really how costly creating that liquidity is. So X Docs is, I mean, it is effectively a rebrand of back finance, you know, in partnership with crack in and back has been around for a couple of years with, you know, this same model of relying on largely pre funded liquidity venues in order for, you know, investors in the secondary market to get access. And you know, this is really how most of crypto has traded today where like trading and settlement are one and the same and prefunding is required. And you know, we put all these assets somewhat passively in liquidity pools and, you know, wait for investors to come around. That really is not scalable to hundreds of different securities or thousands of different securities. I mean, you can't have market makers holding inventory and like enormous supply like on every chain, you know, waiting around for buyers and sellers to come around. And that's not how trading and settlement work in tradefi, right? I mean, there is sort of good reason for, you know, trades to be agreed upon, which, you know, at all sorts of different venues, you know, at different broker dealers. And then for settlement to happen, you know, after the fact, only once the trade is agreed upon.

Now that's like a pretty long lag in track 5. We're able to make it, you know, seconds and s, you know, even a fraction of a second instead of by, you know, days. But by supporting this kind of instintment redeem where the trade is agreed and then, you know, a fraction of a second later we settle, you know, we are able to port like the full tradiff liquidity on chain more or less without needing market makers to be holding on this inventory. So like only when a user comes to us or comes to some secondary market platform form, you know, and tries to buy a security, only then do we mint the token and buy the underlying stock to back the token.

David: I see. Okay. And so when it comes to actually like the token itself being liquid off of your guys's platform. Not your concern, just normal animal spirits of unchain markets, you know, the uni swaps or wherever people put them, but like that's not the liquidity that you're referring to specifically the bridging of liquidity between Tradefi and Urez's platform. Is that correct?

Nathan: Well, they're very related, right? I mean, we don't provide liquidity on secondary markets. Yeah, but the ability for other market participants to provide liquidity on secondary market venues is very tightly coupled to their ability to access liquidity.

In the primary markets. And you know, as a practical matter, you know there are a lot of market participants who are, you know, minting these token Eye securities from us on a real time basis, you know, only after, you know, some purchase requests has been made on some other venue, you know, and reselling after the purchase has been made. Okay, yeah, understood.

Ian: I, so **David**, like to finer point on that almost is like imagine if you wanna put 1,000 stocks on Shang, right? And you have to rely on these decks pools, like what some of the others are doing. Let's say you need at least a million bucks at least, right, for some assets you wanna get way more. To get meaningful liquidity immediately, you're looking at a minimum of 1,000 of a billion dollars to just put 1,000 different stocks in etfs on chain, right? And then you probably have to put that on 10 different chains. So it just, it does not scale cuz all you're doing, to Nate's point, is reinventing liquidity that already exists elsewhere at a cost of capital. It is enormous, particularly for these market makers. So no one's gonna be willing to put that capital on chain, which is kind of what we've seen over the years with the back finance model and increasingly with the X stocks model. And as a result, that liquidity becomes thinner and thinner and these assets start to deep peg left and right, which is again what we started to see with X stocks, where people are buying something they think is at the price, at the right price, but it is not like it's 10% depict. It's like buying a stable coin at a dollar and ten cents. Immediately you're gonna lose money. So no one wants that.

The real way to put liquid markets in tradefi on chain is to essentially make sure that whoever wants to buy it on chain can immediately tap into the liquidity that exists in trad file already. And that essentially is the platform that we've.

David: Legally speaking, is the token and IOU for a security. Is it a true, is it the true security? How does that work? Is it like a wrapper? What's the nature of the actual asset?

Nathan: It's actually a debt security that is secured by, collateralized by the underlying security itself, and that provides a return that tracks the underlying, and we reinvest the dividend. So it's actually a total return tracker.

David: So if I own a stock that has dividends, I'm not getting the dividends, but the dividends go into the value of the token somehow.

Nathan: That's right. Okay. The issuer will reinvest the dividends into more of underlying stock. And we really do that to aid in composability with defi, right.

David: Right. Because dividends just break a lot of things.

Nathan: Yeah, but the investors have a, you know, first priority security interest in the underlying shares. And so there's a third party collateral agent, we call them, that every day is like checking for sufficient collateralization of the tokens. And you know, we ever breach collateralization or a bunch of other terms of the debt, then the collateral agent has the ability and an obligation to actually like step in and, you know, seize the assets and, you know, take over a kind of a wind down process.

Interesting. And the, this actually, these are investor protections that we added to usdy back when we launched that, you know, a year and a half ago or so that we saw as lacking from stable coins at the time that are like very common in traditional finance. So, you know, certainly anytime you like wrap a security in some new structure, there are structural, you know, operational, legal, you know, counterparty risk that can be added. But tradefi is very used to doing this and doing it very well, you know, in the securitization space. And so there are a lot of best practices even around things like bankruptcy, remoteness of the issuing entity itself, you know, to make sure that would never get caught up in like a hypothetical on the Finance Inc. Bankruptcy, you know, has an independent board of directors. You know, there's sort of arms like services agreements so that, you know, it's derisked as much as possible, which is like, you know, I think to an enormous degree in the wrapping process.

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Property rights

Ryan: But okay, so how is this is slightly still different. So cuz we're talking about the different dimensions that you're talking about are important. We, you talked about liquidity, you talked about permissionlessness. This is a third that I think you didn't mention earlier that David was getting into, which is like, what are the property rights of you as an owner of this? And so you're describing this as kind of a, is not quite the same as owning a stock in your brokerage, correct? Because if I own a stock in my brokerage, I have dividend rights. I have the right to vote on, you know, basic, you know, equities, governance types of issues, that sort of thing. I don't get that with the type of tokenized security that you're offering on chain. And that's different from the sort of the experiment that we saw last week, which was people were following this galaxy digital issued Galaxy Tokenize, Galaxy Chain, shares on chain. And this is more of a kind of, it gave you all the property rights, right? It was like a native asset. I mean, correct me if I'm wrong on this, but what are the kind of the property right guarantees? And what's kind of the, I guess, where do you think this all fall when we figure out what these tokenized assets actually are.

Nathan: I mean, I think that voting rights are a little bit of a red herring. I mean, we certainly could pass voting rights through to and token holders if we wanted to. We just don't think there's, you know, much commercial demand for that. Yeah, I don't care about that. I would add.

Ryan: That you guys are participating in governance. Come on.

Nathan: What?

Ryan: So disappointed.

Nathan: Look, I mean, if you hold securities in your. You know, Charles Schwab brokerage account and it is a, you know, set up as a margin account like pretty much everyone has. So that, you know, as you're talking about earlier, right, you don't have to wait, you know, for cash to settle, you know, and you sell a security before you can, you know, buy another one.

Then ultimately what you have is IOU to your broker, right? And so that is how like the vast majority people in the US hold their securities anyway. So if you compare that to holding one of our tokens, where what you have is like a senior secured debt obligation that is 1 to 1 back by shares, you know, held in an SPV that does nothing but like hold these shares and issue these tokens and you have a collateral agent, you know, protecting those interests. I mean, that is tremendously less risky, I would argue. And, you know, a whole lot of dimensions than holding stocks at a brokerage.

But yeah, it is different than, you know, holding shares on the books of some issuer. I mean, that is the, you know, the so called native tokenization approach that some in the industry advocate for, I think it introduces other risks, right? I mean, you start asking issuers themselves to, you know, track or have a transfer agent of theirs track the separation of shares issued and tokenized form versus non tokenized form. You know, and are we really, you know, ultimately someone has to track that, you know, whether you're relying on, you know, the DTC or some broker dealer or custodian sitting on top the DTC, right? That's sort of the rap model. A public company issues all of its shares effectively and they're all held at the DTC, right? And then some custodian, you know, hold some of those shares at the DTC and then holds them in an SPV and issues tokens, right? And when you meet and burn tokens, you move the shares in and out as you know, the SV's box at some custodian. And you know, custodians and the DTC are very used to doing all of this, right, to tracking the transfer of shares between these different legal owners, the alternative and the native model, you know, you're relying on this new system, the assure or it's ta to track what's on chain versus not. And I think that has, you know, that has other risks of itself.

Ian: Yeah, there's been a lot of conversation around the rapper model, and we've come out pretty much in favor of that rapper model for our tokenize stocks. And a lot of people then say, no, you have to natively token. Nice. But I think what a lot of people have forgotten to an extent is that a stable coins a wrapper and that was just fine. In fact, that it was a wrapper with terrible investor protections and people are fine holding it just fine. Like that stable coin is not the same legal rights as the cash in the bank account. But that was very, that was fine for a very long time. And as Nate articulated, the way we do tokenization in the rapper model has a bunch of investor protections that, you know, you never had it in a stable coin. And we could argue, quite frankly, may are even better than what you would do if you hold a stock in a margin account in a traditional Brookage.

Nathan: And then the upsides are enormous, right? I mean, we could do this for anything that we can invest in and that avoids a lot of the adverse selection that the native tokenization proponents have, right? I mean, generally speaking, it's the issuers that can't raise, you know, capital in traditional forms that have been coming on chain to try to sell stuff to crypto natives or stable coins. And that's led to a lot of the like, you know, blows with a lot of the on chain lending, you know, activities that happen and, you know, prior real world asset cycles, if you will.

Is permissionless tokenization possible?

David: I wanna pause for a moment and kind of highlight over what we're talking about and why we're talking about it here, especially with this like native tokenization word. What I'm pretty sure I understand what you guys mean by that, which is like true 1 to 1, not even a rapper, but an equivalent of like an apple share. Is it a token that is natively tokenize is an apple share? It's on. Oh, it's on an IOU for an apple share, but it is an actual itself is the share. And there's a bunch of problems with that. And it kind of goes back to blockchains in nation states just don't play nice together.

And a native tokenization process. To me, like neuters, some of the biggest most cool things about tokenization in the first place, which is complete transferability, permissionless transferability between participants, which if you don't have that, you can't put it in defi very well or really at all. The crypto bowl in me wants like, oh no, like what I totally want clarity from the SEC to get native tokenization. And so we can have like, you know, put, you know, Nasack in the New York soccer change on Ethereum. I want that. But also at the same time, I just know that the SEC is never going to align, allow permissionless, non whitelisted ERC20 tokens to also be true 1 to 1 securities. Because that they you have to have KYC if it's native, you have to have KYC. There's no way they're not going to allow that. And so what maybe we do get guidance on what native tokenization looks like, but I could accept the argument that actually there, the native tokenization status of securities is actually not going to be the dominant pattern moving forward, and it's actually going to be a wrapper because we want these things to be freely non kyc transferable between all participants because then, well, then we get transferability, which we like and we get full integration into DFI rather than kind of like hacky integration into DFI. And so maybe the, I don't know what you guys call it, non native tokenization path, the wrapper path is actually the dominant strategy that ultimately wins out. I know you, I obviously you guys are a fans of that, but maybe can you can kind of just comment on just like the difficulty of native tokenization and how blockchain is so plain nice and how maybe this just inevitably turns into just a wrapped system.

Ian: Yeah, I mean, I, I'm not sure I would go as far as to articulate it exactly in the way that you did. But if history is any indication, like a stable coin was a wrapper that was a permissionless format that was integrated into defi, clearly had tremendous product market fit so that globally a lot of users saw it as an easy way to get access to the US dollar, and it cemented itself as a liquidity layer in this crypto on chain emy.

If a stable coin had originally been issued as true native cash sitting at a bank account, I'm pretty sure that evolution probably would not have happened. And stable coins got so important that to your point, we have our, you know, Secretary Besant is saying this market can grow to $3 trillion over time. And Congress just passed a Bill that essentially cements the stable coin model as legal, and the stable coin as legal tender. So I think there's a lot of learnings in how the stable coin model came to pass, how it grew, how it was structured. And as mentioned, the stable coin is a wrapper. And I would not be surprised if to an extent the, you know, on chain, the bring on chain US capital market assets follows a similar type of path.

David: I remember listening to Nick Carter and Matt Walsh on their podcast, on the brink, back in something like 2020. Their podcast has been around for a while. And they said something about stable coins has stood out to me at the time, which is they were comparing USDC to Paypal and maybe we all have Paypal accounts. And if I wanna send you money from my Paypal account to your Paypal account, well, you have to be registered on the platform form and KYC on the platform. Otherwise, there's no way for me to send you money. That's not true.

With stable coins. And stable coins, that was a breakthrough innovation with stable coins that I think we kind of have just come to take for granted these days, where I can send you stable coins and you don't have to have account with anyone. You just have to have an Ethereum address and I can send you stable coins. And money has never been like that outside of cash until stable coins came around.

I remember Matt and Nick talking about like, this is actually not going, this is going to be illegal in the future. I remember them saying like, and they recently reflected on this on a recent podcast, like, oh, there's no way the regulators are going to allow this. Enjoy your permissionless stable coins while you can because eventually we're all gonna have to KYC. And that's not what happened. Stable coins just grew so large so fast, and we just wedged ourselves in. And like to me and my bank was values and Cipher Punk interest is like, yeah, hell yeah, like permission a second technology one. And hopefully maybe that's just the same way that Token Eye Securities plays out. Is this industry just grows so fast that there's just like new user rights and property rights that happen that become status quo because the wrapper model is actually just more aligned with how blockchains work. And this is kind of what bends the arc of regulation towards what I would consider like individual autonomy, individual freedom.

Ian: Yeah, I mean, I would say ultimately what the model that we have now with on the global markets and the product structure that these tokens have, it does combine very good investor protections as well as the ability to innovate on chain with these assets, right? And even from an ACC's perspective or the broader US government perspective, they're not against, you know, innovation and the like. Quite the contrary. They want innovation in US capital markets. If they want to do it in a responsible way and in a way that you can actually have investor protections. And ideally, in a way that doesn't miss too much with the existing system as it currently stands. And the nice thing about this rapper model in the way that Ondo has implemented it with all of the investor protections, the rapper being tokenized debt instruments, third party collateral agent, everything being fully backed, yet it's still being permissionless assets. Is that you actually do get a lot of what it is that you would want to see in a model with permissionless innovation, very good investor protections and because of the rapper model, not too much interference with these systems that currently exists. So I think the added benefit of the model that we have is even a US regulator may look at that and say, let's find, let it play out, see if there's any real demand.

Nathan: I mean, what we're doing definitely could be extended to, you know, a native tokenization model, right? I mean, it's all just sort of a reference point, but there's no reason why, you know, an operating company couldn't go out and issue directly from, you know, its own corporate entity by, you know, securities that are in, you know, effectively bear Reg s fashion, just like, you know, our global market securities are, right? I mean, the tokens that the global market's entity, the SPV issues are, you know, native with respect to that PV itself. It's just that SVV is in the business of, you know, holding other securities and issuing these tokens.

So, you know, I think more than anything, we are advancing the wrapper model, not because it's what allows us to get to permissionlessness, though it does, but really because it's what allows us to scale without the consent of every issuer so that we can offer, you know, exposure to the whole landscape of all publicly traded securities are, you know, those that, you know, our investors actually want, you know, in one go.

24/7 markets?

Ryan: Okay, so we covered the property rights of this thing. I wanna go back to the liquidity for a minute, and I think I understand the liquidity story of how you guys are doing this. It's almost like a just in time minting, if you will, that if that makes sense.

So I buy, you know, HUNDRED k worth of Tesla, let's say, and it's not already pre provisioned at the time that I buy it. You guys are minting it in effect discipline. So it's, you know, lower cost of capital. And I believe some of the infrastructure here, you guys are using intense for this on Ethereum, which is all the intense infrastructure, if people are familiar with that, like those listeners being leveraged, that's kind of what you're tapping into here.

I do have a question on that and maybe get back to the intense, but I do have a general question. Okay. These markets though, they're not open 24 hours a day, at least the equities markets. We, of course, we know crypto is. Do your markets have to close at night, too? Do you, or do you have to keep banker hours, or what do you do during the off hours?

If I on Saturday night decide to buy my Tesla or sell it, are you able to connect to the underlying infrastructure and like do the thing where you're minting or burning it?

Ian: We support 24/5 minting and burning. So US markets have evolved to enable 24/5 trading, which is really defined as 8 PM Eastern on Sunday until Friday 8 PM Eastern as well. So you do get that 24/5 window.

Most people at a Robinhood account are used to trading 24/7 this. And our platform taps into the same liquidity sources as what a Robinhood would use.

Ryan: So what happens to the value of those assets in the off hours then? Like who, like the time when, I mean during the weekend and let's say that's, you know, part of the 7, not the 5?

Ian: Yep. The moment the market closes, it's at the close price. And then at that point, you know, there's no additional movement in TradeFi. So normally that stock would not be moving price until markets open again.

David: But I can still take that token, I can still sell it on Uniswap or wherever, right?

Ian: Anyone can deploy a permissionless pool with these assets. And then over the weekend, you are correct that price may diverge.

Ryan: Yeah, so we've created market discovery during the weekend.

David: Price discovery happens off chain now.

Ian: I mean, one of the value props, quite frankly, that a lot of the centralized exchanges and the like that want to list these assets - everyone is very excited about 24/7 markets. And sometimes we do have to tell them is like, that's great. If you have inventory on your platform and you have market makers willing to make markets, then you can go for 24/7 all you want. We cannot support minting and burning over the weekend.

But as long as there's inventory on chain and a market maker willing to make markets, then that works. And it's very frankly, it's very cool. And it's something that I don't think is sufficiently highlighted where some of the very large TradeFi market makers are seeing the tokenization of these stocks in ETFs as a way to move towards 24/7 markets.

Because the moment some of these large centralized exchanges decide to adopt these assets, their user base is used to trading 24/7. And so some of these market makers are preparing for that eventuality and are really spinning up, you know, weekend desks trying to figure out how to do these 24/7 pricing of these assets, fully in anticipation of large centralized crypto exchanges starting to list them.

Ondo Global Markets

Ryan: And that will act as a flywheel source of demand basically because if crypto is the only place where you can trade effectively and do market discovery on the weekends, then there's going to be more minting of the assets during the weekdays, of course, in order to expand that market. So you could do more price discovery and trading over the weekends, right?

This is an example of actually crypto leading TradeFi and offering functionality that they won't have and using that as a flywheel to grow the market.

Ian: I think that's right, and it's uniquely enabled by blockchains that can operate 24/7. No problem.

Ryan: Let's talk about, okay, so liquidity, we got that. We got the property rights. Can we go back to permissionlessness? So we've, you've said it could be in exchanges. But when you guys are saying permissionless these, if I go and I mint Tesla shares. Okay, and they're in my, well, I could, I guess I can't do this.

So if I was European and I went and I did this...

David: You're Canadian today.

Ryan: I don't know if it's available in Canada either. So like if I was in another jurisdiction and I minted this, I had these assets in my wallet, you're telling me there's no restrictions? I do whatever I want. I'd spin up a Uniswap pool with them. I could send them to whomever I want. It's like just as permissionless as USDC in my crypto wallet.

Ian: I mean, there are certain compliance restrictions that we have to enforce, like what a stablecoin does with the OFAC sanctions, oracles and the like. So we do have the ability to freeze these assets.

But the main reason why we structured them as permissionless bare instruments is exactly to your point, such that people can use these things in DeFi no problem.

Ryan: Okay, so Aave loan is totally possible on Tesla shares.

Ian: If you want to put up a governance proposal, I'll happily... Okay. Some of these things will take time, obviously.

Ryan: So how big is this right now? So you guys have opened this up on Ethereum right now. I think I saw something like 60 million in tokenized...

Ian: Yeah, so correct me if I'm wrong, I broke 70 today, but give or take. Okay, so you know, when we post launch, we did surpass X stocks in TVL.

Ryan: Okay. And then, so what can I buy? Can I buy all the big US companies? I can buy, can I buy, you know, indices as well, you know, the SPY, something like that. Can I buy NASDAQ? Can I buy QQQ? I do all these things.

Ian: The most popular asset right now... So you can buy all the major stocks, you can buy the major ETFs. The benefit of our model, too is it's actually very easy to put additional assets on chain because we don't have to reinvent liquidity, right? We can just tap into the traditional financial market.

So you'll see us put more assets on chain with a regular drumbeat, because it is very easy for us to do. All it takes truly is a contract deployment. And at that point, people via the intent system can purchase it again. And for the best price and liquidity, we just tap into the traditional financial markets.

Why choose Ethereum?

Ryan: Why did you guys start with Ethereum?

Ian: Great question. I think it was twofold. No. 1 is, and I think you posted something about this recently, when you look just at total TVL of RWAs, Ethereum is by far the leader. So there is a lot of existing liquidity available, particularly in the form of stablecoin.

But there's also a DeFi ecosystem. I mean, DeFi was invented on Ethereum. So over time, if you're gonna be structuring these assets like permissionless bare instruments, you might as well do that in the home of DeFi so that an ecosystem can grow around it.

As Nate mentioned, ultimately, more utility on these assets can form to make the tokenized version truly better than what exists in a TradeFi account.

And I think the third reason really is the intent architecture that existed on Ethereum that truly was required for us to put the liquidity on chain with just-in-time liquidity. As we discussed, the intent architecture on Ethereum is by far the most advanced of any other blockchain. So it truly lent itself quite uniquely to putting traditional financial assets on chain and really building that bridge between TradeFi liquidity and a blockchain, really starting on Ethereum.

Integration of stocks with DeFi

David: As we get more and more tokenized stocks on chain, I think we're gonna be able to see a bigger picture for how the nature of these assets just differ from what we're used to because I opened up my brokerage, Robinhood, and I open up the stocks that I own, I got two buttons. I got buy and sell, and maybe there's a third, maybe I can margin too. I got three buttons to do things with my stocks.

When they're on Ethereum, you have all of DeFi, which is something that no stock has ever seen before. Stocks have not seen DeFi. And that's kind of like the theme of what we're all kind of doing here. And the second half of 2025 is like stocks meet DeFi, DeFi meet stocks.

David: That's what's interesting to me and that's what makes sense about stocks on Ethereum is like we could already exchange, like we already have the swap button in TradeFi. We can already do all of the trading. That's like we're not like, yeah, we can do it on chain. And that's kind of cool, I guess.

But really to me, the exciting thing for me is integrating stocks inside of a very rich, vibrant DeFi ecosystem where you're like, yeah, you can lend stocks, you can sell stocks. I don't think an on-chain context is going to be the best at providing liquidity and swap features for stocks for a very long time, because there's just so much liquid momentum behind the TradeFi markets. Like maybe we can get at parity to it pretty soon.

David: But that's not really what I see as like the main quest here. The main quest is putting stocks onto DeFi apps. And I'm just once again on my soapbox here, but like that's what I see as like why stocks will come on chain, specifically on Ethereum. I'm wondering if this resonates with you. Is like, is this to me the main kind of quest line for tokenized stocks? And maybe it's also trading? What do you guys see here?

Nathan: I think yes and no. I mean, I think it's easy to get overly excited about all the things that one can do in DeFi, but there's a lot of innovation for innovation's sake. And there's a lot of like very complicated, you know, financial engineering. And I don't think that like most investors are actually trying to do complicated like interest rate swaps and structured products and like long tail derivatives, you know, on their stock portfolio. At the very least, we're very early in, you know, bringing stocks on chain, to be super focused on enabling those sorts of use cases.

I think you're right to observe that on-chain infrastructure is not really gonna create like better liquidity than you know, already exists for stocks, at least in the short to medium term. And that's why we're very focused on, you know, porting traditional liquidity on chain.

Nathan: So we, in terms of what DeFi applications are interesting to us, I mean, we are trying to keep it simple. So we're really trying to provide the kind of rates, the terms, the experience to some degree that an institutional client of a large, you know, US prime brokerage desk has to effectively like permissionless global investors.

And, you know, one area where retail gets kind of scammed today is on cost of capital for leverage, right? If you want to lever up your stocks in your brokerage account in the US at the vast majority of big name brokerages, you pay like many percentage points of premium on top of the risk-free rate. Whereas if you're an institution, the spread is very minimal, right? I mean, it's very low risk to lend against liquid public security.

So like, you know, institutional repo markets where these things are accepted as collateral have like a tiny spread over the risk-free rate. So, you know, it's not live yet, but one of the things we're working on is effectively bringing that very cheap cost of capital in our case against, you know, tokenized stocks on chain. You can imagine a lending protocol architecture being used, you know, in conjunction with maybe an RFQ, you know, execution environment for the delivery of that sort of experience to global on-chain investors. So I think a lot of what we do at Ondo is like repurposing tech, which in this case is like a lending protocol, you know, an RFQ DEX, etc. for traditional markets.

Ryan: I totally get that. I do think what part of what David's getting to is like all the DeFi innovation that we already have, you guys are basically issuers, right? So if you're a Tether or a USDC or a Circle or something like that, you just issue the stablecoin. That's all you worry about. And then all of DeFi gets to figure out all of the various ways the market finds value in using that particular asset, and that's what you guys are doing.

I mean, I, for one, can't take my ether and buy Tesla right now. There's no way for me to do that, much less on a Saturday at like, you know, ten PM I can't do that.

David: Right? Ryan does his trading at night.

Ryan: I never would, but I mean, so that is now possible just because DeFi just makes it possible. It's like totally native. And you guys are issuers in that situation.

David: Turning a stock into basically what is essentially an API endpoint for a Solidity developer to do anything with. DeFi got that. DeFi made that available to people in 2015, 2017. Whenever we invented the ERC-20, we've never had that available for stocks. And now stocks are a money Lego DeFi developers can do anything with. And that is cool. That has always been like the golden goose, the North Star that we've been trying to get to. And having that and like allowing creativity, which is just a weird word to combine with stocks, allowing that to flourish, I think it's pretty exciting.

Ian: Oh, I agree. And what does it even mean to be an asset manager or how you create products? I think that's all gonna change once you have these individual stocks floating around on, you know, rails that allow for permissionless innovation. How we think about a robo advisor, self-advisory more broadly, whether that can operate 24/7, the type of products that you can very easily spin up.

I mean, recently I wanted to invest in defense ETF, and I just looked at whether it was available and I found one that looked pretty good. But then I was like, wait, I want Palantir in this. And it's not in there. If I then wanna go and ask a manager, can you create a new product for me? That automatically gives me exposure to these stocks plus Palantir, like good luck. And me doing that myself from a passive investment standpoint, I don't wanna have to deal with that.

Ian: But if all these things live on chain, all of a sudden, I'm sure someone's gonna spin up some sort of ChatGPT interface where it's essentially like, I can, you know, tell it what I want to invest in and it just spins up a vault that automatically rebalances with whatever it is that I want, right? So this level of innovation and personalization that I think we're gonna see in investing, really enabled by these. I love your point around these permissionless Lego blocks in the form of individual stocks. I think that's gonna surprise quite a few people.

Which chains will RWAs settle on?

Ryan: Very cool. Another thing we're wrapping our heads around at this point in the market is as all of these real world assets come on chain, you know, Treasuries and stablecoins as we've seen and now equities and stocks, of course. What chains will benefit the most from this? Or how will the different, you know, like chains change?

Ryan: As you mentioned, and I did look at this morning, Ethereum right now is kind of dominant in real world assets. It was actually, you know, pretty surprising. Ethereum has about 70% of all real world assets 'cause it has the bulk of stablecoins as well, L2s have a small portion of that. Then if you look at the EVM, so Ethereum Virtual Machine, it's like 93%. So there's some network effects at play for Ethereum, particularly if you include EVM.

There's also been a trend where we've seen some corporate layer ones kind of spin up and develop, right? So Stripe announced Tempo. That's gonna be an EVM, but it's its own layer 1. Circle has launched against stablecoins. These are real world assets and some of these issuers are coming up with their own layer ones. I believe Ondo also has a layer 1. I don't know if that's still in testnet or if you guys have fully rolled that out, but I think that's EVM. I also think it's a layer 1 if I'm correct in this.

Ryan: So can you talk about what's going on? So what assets, where will our open permissionless, fully decentralized public networks like Ethereum, where will they play? Whereas where will, you know, corporate L1s, where does that, the Ondo L1 play? And how do these kind of markets or how do these various ledgers kind of work together and like who does what?

Ian: Yeah, it's a very good question and clearly a hot topic for debate. I mean, I think what you're seeing now is a lot of these issuers looking at the infrastructure that they need for a particular use case and saying, you know, Ethereum, Solana, some of these other public blockchains are great. But if I really want to design it in such a specific way to enable specific things with a block time that I can control, a latency that I can control, add some bells and whistles from a privacy perspective, or do the right things that I really need as the issuer. That's why they want their own L1.

And when you're dealing with RWAs more broadly anyway, the trust assumptions that you have in a particular asset are very different than when you're dealing with crypto in the first place.

Ian: So I actually don't think that it is that bad, that a lot of these issuers are designing their own chain. As you mentioned, we were one of the earlier ones, I think, to announce the fact that we were designing our own chain with Ondo L1 that is also EVM. But that was really supposed to be a purpose-built environment that made it very easy to issue tokenized stocks, ETFs, securities more broadly with a couple of bells and whistles.

But then these assets, once they're on this L1 network, they can freely go to the entire, you know, Ethereum and other public blockchains. We've issued all of our assets as Layer Zero OFTs, in part because we expect these assets to go to wherever the users are and to wherever there is a vibrant DeFi ecosystem that can support these things. So I think it's just another sign of us evolving to a multi-chain world where certain chains are going to be more specialized for a particular use case.

Ian: The Ondo chain will be very much designed for equities and ultimately brokerage, prime brokerage more broadly. But it doesn't mean that our assets or that we're not a big fan of Ethereum, right? We issued Ondo Global Markets first on Ethereum because its intent architecture is so good and liquidity availability is great. So I think we're just moving towards an omnichain world where different environments are gonna be optimized for different things. But ultimately, I think the overall innovation and distribution of these assets will become better for it because you're just gonna be able to do what it is that you need on a particular environment.

I mean, take the case of DeFi, I promise I'll stop in just a second, but DeFi in its current state. David, you mentioned earlier, in my brokerage account, there's a buy, a sell and a margin button. But you can very easily get margin on 1,000 different stocks and ETFs. DeFi right now is not really designed to give you margin on 1,000 assets all at once, right? It's just not built that way. So what if you can design an L1 so that it's very easy to do margin for prime brokerage more broadly instantly across 1,000 different assets. There are certain L1s that will not be designed that way, and that's fine. But it means that we as the asset issuer and the use cases that we have in mind for our roadmap, that's what we have to build for.

David: What are the like design properties of a layer one that unlocks that? 'Cause my understanding is you can kind of do anything with any app layer. What's the unique feature of a layer one that unlocks that ability?

Ian: Well, I wouldn't say you can do anything with an app layer alone. Like the latency of a particular network is something that you're gonna struggle to work around. I think the privacy components of a particular network are also may gonna have difficulty working around. And there's a couple more examples of just how you design network security and the like that you may not be able to do just on any L1. So there are, I think, limitations to the network that you issue on, but I don't think that is a problem. I don't think a single L1 is gonna be able to please everyone and everything. We're already seeing that, quite frankly, with Ethereum and Solana and some of the things that they're optimizing for differently. And that's fine. I think that's totally fine. And that's the world that we're gonna live in.

What we have to figure out though, is how these different L1s and different stacks really communicate with one another so that we don't fragment everything away. 'Cause then, you know, some people will say, did we really solve the mess of TradeFi if all we're gonna end up with is these islands of liquidity that don't talk to one another. 'Cause that's the current state of TradeFi.

David: Yeah, it's like as if some ecosystem should stitch all the chains together.

Nathan: Yeah, I mean, to some degree, that is one of the goals of Ondo Chain. I mean, we're trying to make it easy for issuers to go multi-chain and come to Ethereum, Solana, you know, BNB Chain, like the broader public blockchain ecosystem, you know, there's a lot to manage for an issuer. You know, a lot of pain points that we've experienced in bringing our assets to a whole bunch of different chains. And you know those complexities are only greater now that we have, you know, this kind of increasingly complicated infrastructure around managing, you know, instant mints and burns for, you know, potentially thousands of different assets. So we view Ondo Chain as a hub where issuers can bring assets for the first time and then, you know, we'll port them to the broader ecosystem.

And you know, I think the latency point is certainly a very important one. I mean, we have to price in, you know, reorg risk, we have to price in, you know, mempool front running and other things that kind of impact the experience for, you know, end investors on public Ethereum that, you know, may not be appropriate for all use cases.

Ryan: Can I push you guys a little further on this? Because I think it's somewhat interesting. We actually recently hosted a debate between two professors, and one was of the opinion that real world assets don't belong on public immutable blockchains at all. And his point was basically like immutability for real world assets is a bug. It's not a feature. For crypto native assets it's a feature, but for real world assets, what happens if somebody hacks the account and you know, Grandma's Tesla shares end up in, you know, Lazarus Group North Korea, right? Like, well, that's like a bad outcome. And of course, the real world asset issuer is not going to honor that. For instance, they don't belong on public blockchains.

Ryan: The other was arguing that, no, actually public blockchains are exactly the type of neutrality that we need. And that basically all of the industries will kind of, you know, we'll agree to coordinate to use something neutral. And again, if we wanna end up with something that's not like TradeFi with everyone has an independent kind of ledger, then we're going to have to use the same state at some level. What do you guys think? Do you think public chains are the place? Will they tend to attract the most liquidity? Is like immutability, decentralization, is that a feature for real world assets? Or is our, you know, is the critique right that it's actually a bug?

Nathan: I guess let's take this in turn. I mean, on the first argument being made that public blockchains are not the right place because I, you know, real world asset transactions should not be immutable. I mean, you don't need a permissioned blockchain in order to have transaction reversibility. I mean, certainly that could be done, you know, at the token contract or application layer. And I think the, in terms of whether reversibility is required, I think that very clearly just depends on, you know, the preferences of the parties transacting, right?

Nathan: The, and, you know, that hinges on the size of the transaction, you know, the use case, you know, the, you know, familiarity of the counterparties with each other. And you know, no different than we see in TradeFi, you know, all sorts of different, you know, settlement times, reversibility, tradeoffs, etc. I mean, you know, differences between a wire transfer, ACH. And so I think pretty clearly many market participants, you know, as we've seen with stablecoins, you know, which are RWAs, do choose by, you know, the instant settlement, you know, at the cost of transaction reversibility. So I think we'll certainly see, you know, a spectrum there.

Nathan: And yeah, I think, you know, making real world asset transactions reversible for some period of time is something we'll see more and more of. And that is one of the benefits of separating trading from settlement, you know, like it is done in TradeFi so that you have, you know, at least a few hours or, you know, once a day or some period of time to, you know, correct for errors in terms of, you know, the sort of broader question, I mean, I think before we can even answer it, we need to align on what we're talking about. Like there isn't a binary like public versus permissioned chain, right? I mean, you can insert permissioning at so many different layers in the stack, right? Like permissioning, the ability to deploy code, to view the block explorer, to run a validator, you know, to have a wallet.

Nathan: And, you know, in the case of Ondo Chain, like the validators will be permissioned in large part because that's helpful from a compliance perspective for some of the more highly regulated activities that we're targeting, particularly in broker-dealer land. You know, it's not necessary for a lot of activities as we've seen asset managers, you know, can bring tokenized securities to public chains, but you know, broker-dealers, when they're processing transactions on behalf of clients, you know, they have a responsibility to ensure, you know, proper routing, best execution, you know, that the client's orders aren't being front run. You know, these can be a little bit problematic from a legal compliance perspective on a system where there's permissionless validators where there's, you know, malicious MEV going on, you know, sort of able to address those by permissioning the validators. And that's helpful for, you know, for certain applications, but we're able to still have code deployment be permissionless, have having a wallet be permissionless.

Nathan: And so, you know, I'd argue from a practical perspective Ondo Chain still is kind of a public blockchain, right? And a lot of blockchains that we might think of as public blockchains in crypto today have like basically permissioned validator sets anyways.

Nathan: And so I don't know, Ian, maybe you have other thoughts to add. But yeah.

Ian: I find it kind of, I mean, I saw the debate when I know exactly what you're talking about. Just looking at stablecoins, I think that settles the debate. Stablecoins flourished on a public permissionless chain. They were not structured as some sort of permissioned asset. They had some compliance controls, and they were able to flourish with that model. It wasn't a permissioned rollout at all. And to the extent that there are questions around the legality of that model, of what to do with what an issuer is supposed to do, that's in part what the GENIUS Act was designed to address.

Ian: So I kind of don't really think it's a debate. I think RWAs can very much flourish on public permissionless chains. That's where all the innovation happened. Like fundamentally, this is about permissionless access. So global access, which clearly what was needed for a stablecoin and for other RWAs, as well as innovation and how you design DeFi around something like that so that it becomes something better than TradeFi.

Ian: So if you fundamentally believe that an RWA cannot truly operate on a permissionless chain, I don't know, what's the point? And when you look at the history of the RWA sector so far, it has clearly demonstrated that RWAs on public permissionless chains can very much flourish, can bring about very big innovations and now have been blessed by the US Congress with the GENIUS Act.

Is Wall Street ready?

Ryan: Very cool. Guys, as we close this out, maybe I have one question. Both of you are from Wall Street. What does Wall Street think about all this stuff? Like are they, do they understand what's coming? Are they tokenization bulls? It seems like they're starting to wake up to stablecoins, but do they know what is about to hit them?

Ian: I don't think they really do, if I'm being honest. But at the same time, a lot of them have actually been preparing for this moment to give them credit. And now with increasing regulatory clarity, I'm very bullish on what a lot of these asset managers in particular and now even some banks are starting to do. And we at Ondo have never really taken the position that what we're doing is to replace all the banks and TradeFi, it's really to augment the entire system so that it can move on chain and become a better version of itself and really enable global access, global innovation at a scale that wasn't possible before.

Ian: So we're very happy to be working with quite a few of the TradeFi firms. I think, Ryan, you mentioned, you know, Fidelity just did their first money market fund on chain as the largest money market fund issuer in history. Ondo seeded the fund. When you look at it has hundred million dollars in it, that's our OUSG capital. So it was a partnership between us and Fidelity to really make sure that they could be off to a flying start. That's just one example. We did a, you know, a pilot with JPM earlier this year to really connect their Onyx platform to the Ondo chain testnet to make sure that there could be 24/7 flows between TradeFi and on-chain environment. So we're very happy to be working with TradeFi and help them bring on chain. But to answer your question, do a lot of them truly know what's coming? No, but quite frankly, I barely know what's coming in crypto half the time. So.

What's next?

Ryan: What do you guys think is gonna happen? So if we're to project this forward to 2030, what do you think capital markets, what do you think TradFi looks like? What do you think Wall Street looks like? How much in value do we have in tokenized assets just in general? I mean, we're at, we're still under a trillion, right? We're quarter of a trillion right now. How big does this get? How fast does it happen? And what does the future look like?

Ian: That's a tricky answer. Tricky question to answer. Because I think what, even what we've seen so far, is the adoption of this space really works with the hockey stick, right? So it's almost like you're doing a lot of prep and for a while, nothing really happens. And there's a little bit of adoption, but then all of a sudden, the right components are in place.

I think with stablecoins that ended up being the DeFi ecosystem that formed and all of a sudden, there was just this hockey stick growth of the asset. So that it now is, you know, 280 billion and continuing to grow because we need more and more people's minds. The stablecoin is a good way to get access to the US dollar. And I'm sure over time, we'll see the same thing with US Treasuries, US stocks and US ETFs. So it's gonna be very interesting to see.

I'm not sure I have a number for you, but I do feel pretty confident that, you know, five years from now, 2030, a lot of people who open up an investment account for the first time, it will be on on-chain rails, on blockchain rails, and they'll be able to hold equities. So really whatever asset class that it is they wanna hold and be able to transact in 24/7.

Ryan: That's great. Gentlemen, thank you so much. Following your efforts to tokenize equities with great interest and other securities with great interest, you're doing fantastic work. Thanks so much for sharing on Bankless today.

Ian: Thanks so much.

Nathan: Been a pleasure. Thanks for having us on.

Ryan: Really appreciate it. Gotta let you know, Bankless listener, of course. You know, none of this has been financial advice. Crypto's risky, so are stocks. You could lose what you put in. But we're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.