Stablecoins & Digital Securities

This week's episode of the Money Movement will focus on stabelcoins as a payment and settlement medium in purely digital, tokenized securities and financial contracts. We'll be joined by Securitize CEO and Co-Founder Carlos Domingo, who’s firm is at the forefront of enabling companies to issue digital securities. Also on the show this week, Michael Carpentier, CEO and Co-Founder of startup Vesta Equity, a firm building a marketplace for tokenized home equity, making residential real estate more liquid, and creating new investment opportunities that remove the intermediaries that introduce cost and friction into real estate finance. We hope you can join us this week for a deep dive into the cutting edge world of stablecoins and digital securities.

Join us for this deep dive into the cutting edge world of stablecoins and digital securities.

Jeremy Allaire: Hello, I'm Jeremy Allaire and welcome to The Money Movement, a show where we explore the issues and ideas driving this brave new world of digital currency and blockchains. A lot of our discussions on The Money Movement show have been about stablecoins themselves. The role of stablecoins, how they function, how they fit in a broader global macro context, their use in other applications.

A lot of that has really been a focus on the idea of digital dollar stablecoins as a payment system innovation. Surely it is, it represents a very significant breakthrough in how value can move around the internet, how traditional currencies can act as digital currencies, and the speed, the utility, the security, all these things are increasingly really well known and understood. We're going to continue to focus on different dimensions of that on the show. I think when we look at stablecoins, we also look at this bigger idea. This bigger idea that digital currency and these Fiat denominated digital currencies are a base layer that lots of other forms of innovation can be built on top of.

I like to describe this as money becoming a native data type on the internet. Just like we have text and photos and videos, we're going to have digital money and by being a native data type on the internet, that's very exciting. What makes that so compelling and what makes that so exciting is the programmability. One of the things that makes the internet so powerful is software creators can write code that interacts with all this content and data on a global basis. That's allowed incredible breakthroughs that we all take for granted today.

The programmability of digital dollars through the use of smart contracts on these blockchains is a discontinuous level of innovation. That's something that we haven't spent as much time on The Money Movement talking about, and something that we're going to dig into in a little bit more detail today. This leads us into this idea of programmable financial contracts. If there's an economic arrangement between an investor and a company, between businesses themselves, all of these are financial contracts, and in the world of finance, financial contracts are called securities, aka digital securities.

Today's topic, we're going to be exploring this and we're going to be doing that with two guests who are really innovating in this space of digital securities. They're going to be here talking about what's happening in the here and the now of tokenized financial contracts. To kick this off, we're joined here by Securitize CEO and co-founder Carlos Domingo, whose firm is at the forefront of enabling companies to issue digital securities. Welcome, Carlos.

Carlos Domingo: Hi, Jeremy, thanks for the invitation.

Jeremy: Excellent. So happy to have you here and on the show today, it's really great to see you, of course. I want to start at a really high level and just assume that the audience knows very little. I've described this idea of financial contracts or securities and to some people this is just mumbo jumbo, so maybe just first, for the audience, what is a security? How do you define a security?

Carlos: As you said, a security is a financial contract, so it's something you can trade, you can buy or sell, that basically gives you certain financial rights over an asset. It could be equity in a company, it could be some yield generating asset, et cetera. Basically, it's something you buy to profit from the work of others. When you buy stocks of Apple, you don't work for Apple, Apple has their own employees and CEO, et cetera, but if Apple does well, because you own a portion of Apple, then your investment appreciates over time.

Jeremy: The stocks and bonds are maybe the most--

Carlos: Stocks and bonds, all type of derivatives, royalty payment instruments, et cetera. These are all securities because these are basically financial instruments you buy and you wait to profit from someone else doing something.

Jeremy: I guess a mortgage is a security. It's a form of debt and you enter into a contract.

Carlos: That's actually a good point. In the US, loans are not considered as securities. It is a bit of a gray area, but some people think they're not securities.

Jeremy: If you package up a bunch of loans and sell that, then it's--

Carlos: If I borrow money from a bank, I'm taking a loan, it's not a security, but if the bank takes all these loans and then puts them under an instrument and then it sells shares to that instrument against the yield of the mortgages, then that definitely is a security.

Jeremy: You and I are both entrepreneurs and have started businesses, and when I think about a stock in my company, what I think about is lawyers, and I think about giant long documents that are called a corporate constitution and investor rights agreements and share stock purchase agreements and lots and lots of phone calls and billable hours. Today when I think about a security, and what that is, it feels to me it's a lot like a giant pile of paper contracts in a court system that enforces those. What is it that takes the securities and makes them digital? How do we go from my intuitive feel of what a stock is as an entrepreneur to a digital security?

Carlos: Securities, as you said, they've started being paper and paper certificates. That's how securities were issued since the first security at the beginning of the 17th century. They've been paper-based for the most part of their existence. Until pretty much the '60s, all securities were still paper-based, even publicly traded securities that were traded in New York Exchange. People used to actually, to settle a trade, you actually have to physically move a paper from one broker into another broker. That's how it was used to. This obviously was not a very efficient way of trading.

Stocks exchanges in the US used to close on Wednesdays because they had to stop for a day in the middle of the week to be able to actually settle the trades because there were hundreds of people working for Merrill Lynch or JP Morgan, or whatever, running around [unintelligible 00:07:16] bicycles and moving the stock certificates. That's how they were done back then and obviously, that system collapsed. Then towards the late '60s, there was what refers to the paper crisis in Wall Street, where at some point in time the volume of daily securities traded went from like 5 million to 15 million, and then obviously, they couldn't settle things anymore because it was not enough people to move the paper around.

At that point in time, securities started to become electronic, and then the US is well known that there was a creation of a central and digital DTC, which is a central depository like they existed in Europe before, where all these paper certificates were held and then they had a computer, because there were computers already in the '70s, where they actually keep a ledger of who actually was the actual beneficial owner of those physical securities that were held in a vault by DTC. That was the first step towards digital security realm because US started being able to have [crosstalk]

Jeremy: It's like Swift was the first electronic money, which is essentially like a [crosstalk]

Carlos: Correct. Swift is a good example of exactly the same thing. Swift is a ledger that allows you to trade money electronically without having to physically pay the money. It's the same thing.

Jeremy: Early digital forms of money.

Carlos: I'll say, yes, more than digital it was probably electronic as opposed to digital, if you think of electronic at a much more blur static way of doing things and digital as something native digital that exists only in zeros and ones because, at that time, the paper certificates still existed. They just have what is called a book-entry security, which was basically an electronic representation of this security. For the most part, all publicly traded securities in US, Europe, and major markets are digital today. They're already digital securities today.

For you and I, the stock in our company is paper-based, but the stock of Apple, when you go to Robinhood and trade, is a pretty digital experience. You go there and you trade and you don't know what happens behind the scenes.

Jeremy: A lot of this is the record of who owns the security, but obviously part of what makes securities interesting is they have features. The feature of an equity is it includes the right to vote certainly on certain defined matters, it entitles you potentially to dividends, to liquidation rights, or whatever those features are, the security has features. Those features are expressed in English language typically, or whatever language, but those are important parts of the security as well. Maybe talk a little bit about how we're moving into tokenized securities, which parts of the security are becoming truly digital today?

Carlos: Let's go back for a second. Public securities, for the most part, they're digitized, the features of the securities are not properly digitized. If you want to pay a dividend today for a publicly-traded company, it's still a process that takes 15 days because there is no single ledger that contains the beneficial owners of the security, but the world of private securities, which is actually much bigger than the world of public securities, that is actually very probably digitized or not digitized at all. Then those securities actually have more features, as you said, because besides the rights which is part of the features of the security, they also have a very complex regulatory situation because they're not free tradeable. They have rights for refusal, they have local periods, they have all the type of restrictions. Tokenized securities is basically a way to digital securities because it's a digital representation that happens on a distributed ledger, like a public blockchain, and they're represented as a token with the additional benefit that then this token is governed by a set of smart contracts and those smart contracts enforce the programmability of the features, as you said, of the security. I think that's what's revolutionary of this way of digitizing securities.

Jeremy: Securitize, you've got created a platform where a company can take an existing asset, like stock, and create a digital representation of it, but also create new security that is natively digital as well and issue that to investors, and then provide all of the infrastructures to actually to manage that and the life cycle of that on a blockchain.

Carlos: That's correct. Companies digitizing securities is not something new. If you think about probably the biggest one in the world is Carta and has been digitizing securities for startups. I think that the main difference of what we do is that we use blockchain technology as a way to digitize the security where we will include all the programmability of the security, or the features, or the rights, et cetera, and enforce the compliance goals of the security with the smart contracts on the blockchain and that's exactly what we do. Obviously, that is a component of our platform that is off-chain in terms of investor onboarding and dealing with setting up the features, et cetera, but then the actual security and the beneficial ownership are tracked on the blockchain as stock.

Jeremy: Sort of moving the actual record, the ability to possess and pass ownership, some of the fundamental rights, all those things are sort of moving into smart contracts and executable on blockchains.

Carlos: Correct. They're executable, they're traceable. Securities have roles, like for instance, in your company, my company, there is a number of securities that has been approved by the board and you cannot actually issue more than those. People actually don't know, and there's been instances where people have issued more securities than the ones that are authorized. On the blockchain, you can actually prevent those things to happen because you can control how many tokens are being issued and enforce those with compliance with smart contracts and you can actually trace the history to make sure there's nothing illegal has happened.

It's a better way to digitize securities is a much more interesting one and I'm sure the next question's going to be about stablecoins, which makes it even much more interesting about the type of things you can do with both instruments on the same ledger.

Jeremy: I want to get to that because it's obviously a core theme of this episode, but just I think a lot of people are familiar with, I have stock in a company or I have a bond of some sort or some yield instrument. What about the tokenization of other assets and creating new digital securities that unlock the ability to invest in, trade, access the underlying physical asset? There's been a lot of talk about tokenization of property. Actually, we have a guest coming up in a few minutes here that's going to talk about tokenization digital securities in the real estate market, but is that something that is fundamentally new? Are we going to be able to unlock access to forms of assets by individuals around the world that haven't been able to participate in those or create new ways for people to securitize value that they might possess?

Carlos: I think the securitization is not new, it's something that has existed in the past. I think that when you make it digital, you make it more accessible, it's easier for people to purchase it, to trade it, to receive dividends like the whole management and asset service component of a security becomes much easier. What I like to think about it is if you think about music, when music got digitized at the beginning, we went from having LPs to having CDs, right? CDs was a digital version of an LP, but for the most part, the experience for a while was the same. You will still be buying something physical, you will still go to Virgin Megastore, you will still be purchasing 12 songs from an artist that will be an album.

Then the moment it became digital, then people started thinking about, oh, things that you could do, you couldn't do before. Well, let's just strip out all these songs from all these CDs and put them all in a mini hard disk, which was the iPod, or let's just buy one single song instead of the entire album and let's then not even own the music and just stream the music. The way I think of this is the same. Yes, securitization existed, yes, digital securities or electronic securities have existed. The moment you make them natively digital on a new, much more power platform, then there are going to be new use cases that no one can think of that will appear in the future. First on the first wave of just let's digitize and then let's figure out something else.

Jeremy: We've heard really interesting ideas. I've heard had a conversation with a firm that's taking incredibly popular cartoon character in Asia and creating a tokenized digital security of the future royalty streams of that cartoon character that they're going to allow people to invest in and own. That wouldn't have been possible until this kind of technology.

Carlos: Correct.

Jeremy: At least in a seamless way. Let's talk about stablecoins and digital securities. I like to think of these hand and glove. If you have a security, you need to be able to put money into it and you need to be able to get money out of it if you're doing it on a blockchain, a stable value, digital dollar, something like USDC is potentially really powerful. How do stablecoins play a role in what you're doing today and what do you think that enables?

Carlos: If you think about traditional finance, so as we said, there are securities that are already digital, and there is money that is already digital. I think the very powerful idea about having tokenized securities on a blockchain and having cash on-chain as well, represented by a stablecoin as token is that for the first time in the history of capital markets, you suddenly have two things that traditionally have been two separate entities being tried in separate ledgers that suddenly on the same place. It blurs the boundaries between the two and will allow us to do things that were not possible before. If you think about, as you mentioned, the process of purchasing a security, it's a disjointed process.

You have a security somewhere, someone has the ledger saying you own that security and you're going to sell it to someone else. Someone has to update that ledger saying that it moved from Jeremy to Carlos, at the same time Carlos has to pay Jeremy, so there's another ledger that contains the cash in a bank account that needs to be sent to another bank account. To make sure that these things actually cross and settle, I receive my security, you receive review cash, is a very complicated thing that has a lot of intermediaries and it sometimes takes days to do it. The settlement of public securities still takes two days, for private securities, it could take weeks, et cetera.

The very powerful idea about stablecoins and security tokens is the fact that they're both represented with the same type of technology. Let's say assets in Algorand or [unintelligible 00:18:14] and Ethereum, et cetera, and within the same ledger and then you can, on top of that, use the ability of the blockchain to do atomic swaps and make sure you can just swap one by the other. If you add on top of that, programmability for regulations, so you can enforce the compliance of the trade, then you suddenly have something extremely powerful. You can trade private securities instantly without counterparty risk, which is something that doesn't exist. It's just the first time in history that has been enabled.

Jeremy: Like a smart contract that represents a bond. A corporation that says, "Hey, send us dollars, you're going to get this," the promise of a return over time. The dollars come in through the smart contract, they go into the corporate treasury of the company as a stablecoin. When time is due, they can return capital through a stablecoin out through the smart contract to the token holder and the token holder receives it as something like USDC. All that can actually be automated. It can all be done on-chain, it can all be done very inexpensively, and so the security itself in your world actually is providing the mechanism of how value comes in and out.

Carlos: That's true. Bond is a great example. People don't realize about the complexity that is behind the scenes for actually paying a bond. Like the coupon of a bond. Because you're the insured, let's say you're a large corporation and your treasury department issues a bond, and you typically will give it to a proper dealer that will give it to a bunch of investors. Then you as the issuer will have to find an issuing and payment agent that will actually issue the security on a central depository, like DTC, and then those investors will give it to their custodians, which they also have accounts with DTC. Then when you have to pay the bond, that is a convoluted things going around until the money finds the investor and the issuer has no idea who the investor is.

The beauty of blockchain-based securities and stablecoins is that first there's a ledger that contains the beneficial owners. They are all tracking real-time if there's trading happening, that's the first important thing. The second one is that you can just reverse the money automatically making sure it arrives to the right people at the right time and the right amount without you having to know actually who holds the securities but without having to use any intermediaries to achieve that. That's very powerful because it eliminates the cost of intermediaries, but it also reduces the time it takes for coupons or dividends to reach people, which means investors have more money to reinvest somewhere else.

Jeremy: You just announced a use-case I thought was really powerful, and I think we've got something going up on our site talking about it today, which I think it's paying dividends in stablecoins and one of your clients did that, you want to talk about that for a moment?

Carlos: Yes, so we've started having customers that have issued digital securities that want to leverage the advantage of the digital securities. This was like the first time we actually did the dividend payout, so we gave people the option of using the wallet that has already been registered with us and contains the securities to receive payments in stablecoins. We actually use USDC or just register a bank account and then do the payout. The interesting thing is that 60% of the people opted for getting their money in USDC, which for us is great because it's cheaper for everybody it's faster, it's more accurate, and there's less manual process involved. I hope to see more like 100% native issuances and payouts that are all done with stablecoins and digital securities because that's definitely the future to eliminate friction and cost

One thing people don't realize is that public utility companies, when they pay dividends, it more or less takes 15 days for you to actually receive the dividend in your account. That time, the money is basically is sitting in the bank account typically of a transfer agent, accruing value for the transfer agent when that money should belong to the investors. I think that's something that we should all aspire to eliminate and give the money to the people that have actually purchased the security and deserve the money and get it in their hands as soon as possible.

Jeremy: That's awesome. That's very cool. Just maybe stepping back a little bit, you've been working on this problem space for a while and in some ways, we can look at all of this, stablecoins, digital securities. This is like what I like to think of as a market infrastructure journey, and we're making progress month on month, year on year. Where do you think we are in that market infrastructure journey in this moving from early adopters into crossing the chasm into mainstream usage?

Carlos: I started looking at this problem around March 2017. Before we actually funded Securitize, we wanted to organize our own venture capital firm and issue a digital security on the blockchain as a token. At that time, I can tell you, it was a drama. First, people didn't understand what tokens were and there was also the craziness with the ICOs and people thought that everything that is a token has to be scam and illegal, even if what we were doing were securities. Stablecoins were not as popular or integrated with infrastructure as today. The user experience of user using wallets on blockchain was terrible. We didn't have qualified custodians that could actually hold securities. It was a lot of uncertainty in terms of what the regulators thought about this space. There were no blockchain-based transfer agents. There was nothing basically. This was really starting something [crosstalk]

Jeremy: [inaudible 00:23:51] actually, you think about that from there to there. In terms of financial market infrastructure and seeing all that happen in just a couple of years is pretty amazing.

Carlos: Yes, so it is been three years, I'll say, and yes, if I think where we are today, it's kind of frustrating because I thought that we will be farther along. At the same time, if I go back in time, I look at it's been only three years and I will say maybe 70% of the problems are solved, I think it's pretty remarkable. I think there is a couple of more things that need to be fixed for this really to take off and to be like the preferred way of people to basically issue securities, because there's no downside to do it and there is a lot of advantages.

Jeremy: Yes, absolutely. We've been in a parallel journey and obviously, we're seeing things really kick into gear with this infrastructure now. I think one of the things that I love about what you guys are doing and I've seen the scope of the product and I think implicit in it is a vision for digital corporations and what does it mean to actually run a digitally native corporation and have more and more of what you do manage on-chain. What is your vision there? Do you think as we look out over time, do more and more of the machinations of corporations through the combination of things like digital securities, stablecoin infrastructure, blockchains, does more and more of what a corporation is move on-chain?

Carlos: If I think about the first time I was a CEO, I was 29 years old and it was late '90s. At that time, managing a startup was a bit of a drama because you didn't have tools to actually manage the company digitally. We did have to pay for manually. We didn't have good communication methods. We didn't have good accounting systems and ELPs and things like that. Fast forward now when I started Securitize, it is amazing how many tools are for managing your corporation digitally, but there is a percentage of the things there that are still not fully digital, like the way we manage cash in companies, it is not digital.

For us, it's a nightmare, we have multiple bank accounts for different purposes that need to be reconciled, et cetera. That's one thing. Obviously, you can manage your securities digitally. You can just get something from like Carta, but that only solves part of the problem, because it doesn't actually allow for trading. It doesn't allow as a servicing and some of the things that security is doing in a simple way, and it's not integrated with the ecosystem of other tools that are happening on the blockchain.

Then as you mentioned governance, it is the next step. I think we are already building it in governance tools for securities, but for the entire company and this promise of like these doors that will allow people to manage their companies on the blockchain is probably a few years away, but it's definitely towards the direction we're going.

Jeremy: I agree. I think it's exciting and as you said earlier, when some of these innovations happen, like digital music or whatever, no one could really even imagine all the things that people would do, and I think that it's definitely a space where there's a bunch of converging things happening and capabilities and entrepreneurs are going to go build amazing things.

Carlos: Yes. I think that the issue with digital securities as supposed to digital music is that, digital music is an unregulated market. I don't know, when Spotify started, I remember they were doing peer-to-peer transfer--

Jeremy: It was regulated by four companies basically, originally.

Carlos: Well, yes. [laughs] Self-regulated if you want, but I remember, and you probably remember it because you were working on video streaming at that time, but when Spotify started, they were doing peer-to-peer streaming because there was no good streaming infrastructure. That worked better than centralized streaming, but it didn't work very well. Half of the time when you used Spotify, you couldn't actually get the song. It's not a major drama, but for us working on financial services, if your USDC doesn't work and you can't pay, or if your securities disappear because you've done it incorrectly or things like that, this actually has a big financial impact and it's a highly regulated market.

Jeremy: Higher stake.

Carlos: Yes, higher stake, but this is also why it's taking longer for these things to adopt. For us in the technology industry, I'm sure you've seen a hundred times this typical presentation from consultants saying, not every single new innovation gets left at first stage. Well, this one is not because this one has an implication in the world--

Jeremy: A little more friction there.

Carlos: Yes, it will take a little bit longer, but the same that FinTech has penetrated other parts of the financial service industry, I'm 100% convinced it will penetrate securities and capital markets and it will completely transform that.

Jeremy: That's awesome. Carlos, really great to chat with you and get your perspective. I want to thank you again and, of course, hope to see you very soon.

Carlos: Well, thanks for the invitation and keep up with the great work at Circle.

Jeremy: Thank you, Carlos.

Carlos: Thank you. Bye-bye.

Jeremy: Absolutely. Well, so I think this is all really gone from the abstract and high-level ideas a few years ago into really exciting live projects, rapidly evolving technology. With that in mind, I'm really excited about our next guest who's an entrepreneur, who's leveraging tokenization, leveraging stablecoins, leveraging digital securities to solve a very large challenge in the market. I'm excited to welcome Michael Carpentier, who's the CEO and co-founder of startup Vesta Equity, a firm that's building a marketplace for tokenized home equity, making residential real estate more liquid, creating new investment opportunities that remove the intermediaries that often introduce cost and friction into real estate finance. Welcome, Michael.

Michael Carpentier: Thank you, Jeremy. That was well said. I couldn't have said that better myself. Thank you very much.

Jeremy: You're welcome. It's great to have you on here. I've been excited to learn about what you're working on the vision and what you're driving. Maybe it would be great to just kick this off with a little bit of background on yourself. What brought you to this space and this idea of tokenized assets, digital securities in this particular market?

Michael: I've got a bit of 25 years senior-level experience building digital companies. I've never been actually on the finance side, or the real estate side before. A couple of years ago, I picked up a book that you could say changed my life. I think it was a book written by Don Tapscott called The Blockchain Revolution. I was absolutely hooked after that. I immersed myself in blockchain, I read every book I can get my hand on, every white paper, took seminars, webinars, did some courses at MIT, got my professional designation. Then started really taking a hard look at where could this be applied, what would be the best use case scenarios.

I settled on the home equity side of the equation, took a look at it, found there were a lot of inequities in that space. I decided there could be a great opportunity here in terms of building out a business that, as you said, could provide liquidity in a market that is otherwise very illiquid and has a lot of elements to it that are essentially not fair to the homeowner, and certainly create barriers for investors to get involved in as well.

Jeremy: That's fascinating. I also did not come from the financial industry and being in internet technology businesses and similarly, really drawn in and figured this is the time when entrepreneurs can really change how things work in the financial system. This theme that we just heard about and talking with Carlos, digital securities, this idea of tokenization. In your use case, home equity has been typically something where liquidity has been challenging and average investors can't easily participate. How will digital securities unlock that in your model?

Michael: Essentially, what we're doing is we're building out from a technological regulatory legal perspective, the marketplace to allow homeowners to tokenize their home, and then creating the marketplace to allow investors to come in and buy a percentage of that home. Sounds simple, but the technology behind is obviously complicated. Right now, if you're a homeowner, there's only two ways for you to access the equity, you sell the home outright, or you take a loan against it. Not exactly a fair scenario. We say it's similar to having $100,000 in your wallet and being told, "You can only access the cash in your wallet if you pull all of it out or you take a loan against it."

If you had that, most people would say, "That's not equitable, I'm not going to do that, you're out of your mind." That's the exact situation that homeowners face. By allowing the tokenization process or allowing them to access their home, like a wallet. For many people, the home is their largest asset. If you take a look at the data in the US alone, the average 55 to 75 year old only has $5,000 to $16,000 in savings. Sounds scary. It is. For many of them, that home is their biggest asset, and they should be allowed to access it easily without any financial incumbencies, or any other issues in and around that because it is their cash.

Jeremy: Interesting. It sounds like this tokenization of the home equity would allow to dial that up and down more flexibly to have smaller chunks of your home equity sold or made available much more frictionlessly?

Michael: Yes, that's exactly it.

Jeremy: Where does stablecoins play a role here? How are stablecoins going to bring value to the platform you're building? How do you see their role, not just in your marketplace that you're building, but in this realm of digital securities?

Michael: Well, from our perspective, first, it provides us a frictionless, timely, stable, programmable, and secure transaction with virtually no intermediary involved and those costs associated with it. Stablecoin allows us to execute our business in a much more simpler manner. Other cryptocurrencies will let us do that because there's the volatility aspect of other cryptocurrencies like a Bitcoin or something like that. We needed that stability. I think that holds true for other securities.

Bitcoin plays its role and it has its role and there's a reason why there's volatility in that particular cryptocurrency, but most securities can't add that volatility into the situation and they need something that's scalable, and that's what a stablecoin offers us in this particular model.

Jeremy: In your model, this tokenized home equity people can invest, they can put in the investment using USDC. Then the homeowner is actually receiving the capital in USDC, and all that can happen nearly instantly on-chain, running over the internet.

Michael: Exactly. The homeowner can make the decision to keep their holdings in USDC and potentially also become an investor on the platform. For the investor, the property investor, they will obviously keep their funds in USDC and be able to continue to invest in other properties if they want to. Or they can trade out and exchange it for other cryptocurrencies that they want to, or exchange it back to fiat currency, which is US dollars in this case.

Jeremy: Absolutely. We see that seamless movement between existing electronic money and pure digital currency and so on and making that smooth and frictionless for businesses like yours is obviously something that we're really focused on. I know that you're looking at this as the homeowners, investors in real estate equity, this is a place where there's a lot of value. I'm guessing, given the journey you described and taking an interest in tokenization, I'm assuming you've considered how this approach can be applied to other markets.

Where else will this play out? What other market segments, industries is this going to happen? Maybe you could share these ideas for entrepreneurs?

Michael: It's a good question. Anything can be tokenized, and proof of that is crypto kitties. I don't know if you've heard of that or not.

Jeremy: Of course, absolutely.

Michael: You mentioned the royalties on the anime, out of Japan, the anime product out of Japan. The first thing you have to ask yourself, is there a viable business model behind it before you say you're going to tokenize something, and are you solving a real pain point. Essentially you're just tokenizing something for the sake of tokenizing. Obviously, obvious areas are collectible. For example, art, there was a great company out of Europe called Maecenas, which allows you to build a portfolio of what they call masterpiece artwork using tokens. Things like rare coins, baseball cards, antiques, and more can be tokenized.

Inherent in that are obviously complications, how do you authenticate it's the real thing. It's a genuine article. Then the other issue you have [unintelligible 00:36:49] something like that is security because it can basically be picked up and taken and moved somewhere. How do you ensure that it's not being absconded with or taken away? Those things can be solved through technology?

Jeremy: Like Securitize [unintelligible 00:37:04] business-providing platform.

Michael: Exactly. You can't pick up a home and move it unless it's on wheels. We don't really have to worry about the home, but there are issues around the home that we have to obviously ensure that the home is not being used for any illicit issues or things like that. There's other great examples, QB, which is a company out of Europe has actually tokenized loyalty programs, and taking the loyalty points and tokenize those. That's a great example of something else being tokenized.

Then there's another great company called Brave, which is a blockchain-based browser, and they have tokenized your attention, essentially your time, and they give you a coin called Basic. You basically get paid for allowing ads to target you and allowing them to use your data. That's something that right there has been tokenized that's essentially just time.

Jeremy: It's fascinating. Props is another tokenized loyalty model that is being utilized in games and other things. A lot of interesting stuff. In your investor equity case, how quickly do you think this marketplace grows? What's the total market size? What do you think starts to participate in this and over what timeframe?

Michael: Total market size in the US is pretty significant, it's about $3.5 trillion every year property that's financed that's solely residential property. How fast will it take off? I think in certain markets, they'll take off quicker than other markets, where they tend to be a little more advanced when it comes to their use of technology and understanding of technology. We're not going to make a major issue of the fact that we are using Blockchain or tokenization stuff for the average consumer, because I think it'll just elevate the discussion to a level that's not necessary at this point.

I think that in the next three years, we'll see a lot of early adopters and innovators take this on. We're already starting to see big commercial projects being tokenized. There's a great company out of Europe, again, called Mata that's tokenizing big, big residential property of projects and big commercial properties and tokenizing those and selling off shares of those specific properties to investors. We're starting to see it in the real estate space already. With regard to this, I think within three years, we'll see some significant uptake, and we'll move into that early majority of people that [unintelligible 00:39:35].

One of the things we're moving into is people understand there's a need for this, people are getting home equity loans, they're getting reverse mortgages. They're just, unfortunately, getting very unfair deals from the perspective of the banks, and this is something that's far more equitable for them because they're not actually ending up with a mortgage, compounding interest, and monthly payments.

Jeremy: Absolutely. As a homeowner, I have a great deal of empathy and think what you're doing is fantastic. Michael, thank you so much for joining us, and obviously good luck with the upcoming launch.

Michael: Thank you very much. You take care.

Jeremy: All right. In summary here, tokenized assets, digital securities, introducing more frictionless forms of finance and commerce, stablecoin's role in that, stablecoins with programmable money. As you're hearing here, we're still in the first inning with some of this, but these are things that we're going to be tracking very closely here on The Money Movement as we go forward. Speaking of The Money Movement, next week is going to be a really exciting episode. We're going to be talking about USDC at 1 billion. Actually, today USDC crossed 1.3 billion and USDC has become the fastest-growing stablecoin in history, seeing nearly 200% growth over the past six months alone and becoming a day-facto standard as a trusted compliant digital dollar format and protocol for payments on blockchains.

To reflect on all of this and also share some really exciting news about the next chapters for USDC, we're going to be joined by two of the top product executives from Circle and Coinbase who have been responsible for the development, launch and growth of USDC. Joining us will be VP of product at Circle, Joao Reginatto, and group product manager at Coinbase, Nemil Dalal, with reflections and visions on the future of USDC. If you're in the broader crypto ecosystem, you're not going to want to miss this episode. We're going to have some nice surprises. Until next time, stay well, stay safe, and stay informed.

[00:42:23] [END OF AUDIO]

Carlos Domingo
CEO & Co-Founder, Securitize
Michael Carpentier
CEO & Co-Founder, Vesta Equity Inc.

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