The Money Movement / Episode 16

Episode 16

Stablecoins & Digital Securities

Summary & Key Takeaways

Full Transcript

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.

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 in a broader global macro context. They're using in other applications. But a lot of that has really been a focus on the idea of digital da stablecoins as a payment system innovation. And 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 of these things are are increasingly really well known and understood. And we're going to continue to focus on different dimensions that dimensions of that on the show. But I think when we look at Stablecoins, we also look at this bigger idea, this bigger idea that digital currency and these sort of fiat denominated digital currencies are a base layer, a kind of base layer that lots of other forms of innovation can be built on top of. And 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 gonna have digital money. And this native being a native data type on the Internet. That's very exciting. And 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, and 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 kind of discontinuous level of innovation. And 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. And so this leads us into this idea of programable 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, a.k.a. digital securities. So today's topic, we're going to be exploring this and we're gonna be doing that with two guests who are really innovating in this space of digital securities. They're gonna be here talking about what's happening in the here and now of tokenized financial contracts. So 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. [00:13:49][213.9]
Carlos Domingo: [00:13:50] Hi. Thanks for the invitation. [00:13:51][1.2]
Jeremy Allaire: [00:13:53] Excellent. I'm so, so happy to have you here and on the show today. It's really great to see you, of course. I want to, you know, kind of start at a really high level and just sort of assume that the audience knows very little. I've sort of 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? [00:14:18][25.4]
Carlos Domingo: [00:14:20] Yeah, as you said, the security side is a financial contract. Right. So. So it's something you can trade. You can buy or sell. That basically gives you certain rights, financial rights over an asset. It can be like within a company. It could be debt, it could be some yield generating asset. So basically something you buy to profit from the benefit from the work of others. So so when you buy shares of Apple, you worked for Apple, Apple. They want to buy these and see if Apple does well. You because you own a portion of Apple, then your investment appreciates over time. [00:14:55][35.3]
Jeremy Allaire: [00:14:56] So stocks and bonds are maybe the. [00:14:57][1.8]
Carlos Domingo: [00:14:58] Most bonds that, you know, or type of derivatives. So, you know, royalty payments, instruments, except how these all securities, because basically as you buy you you wait to profit from someone else. You know, doing something,. [00:15:12][14.6]
Jeremy Allaire: [00:15:13] I guess like a mortgage is a kind of security. Right. It's it's a it's a form of debt. And you enter into a contract and. [00:15:19][5.7]
Carlos Domingo: [00:15:19] It's actually a good point. So in the US loans are not considered securities. This is a bit of a gray area. But some people think they're securities. [00:15:26][7.2]
Jeremy Allaire: [00:15:27] But if you package a bunch of. As gas, then, that's right. [00:15:30][3.0]
Carlos Domingo: [00:15:31] If I borrow money from a bank, I'm thinking along, that is not a security. But if I used to buy and fix all these loans, I mean, put someone out on their own instrument and they sell shares to that instrument again as the yield of the mortgages, that not differently. [00:15:45][14.3]
Jeremy Allaire: [00:15:46] Right. So, you know, I you and I are both entrepreneurs and have started businesses. And, you know, when I think about, you know, stock in my company, when I think about it, the lawyers and I think about giant long documents that are called a corporate constitution and investor rights agreements and and share share stock purchase agreements and, you know, lots and lots of phone calls and billable hours. And so today, when I think of security and what that is, it feels to me it's it's a lot like a giant pile of paper contracts and a court system that enforces theirs. So what you know, 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? [00:16:45][59.1]
Carlos Domingo: [00:16:46] So security is, as you said, they started being paper and paper certificates. That's how security is where you since that first security. You know, the 17th century. And then they they've been so, you know, paper based for the most part of their existence. So until pretty much the 60s, all securities were still paper, paper-based, even publicly traded securities that were introduced, a New York Stock Exchange. So people used to actually, you know, just to settle a trade. You actually have to physically move a paper from one broker into another broker. That's how I was used to you know, this obviously was not a very efficient way of of trading. And, you know, stocks tend just in the US, used to go to the Web sites because they have to stop for a day, the middle of the week. It could be able to flexibly settle the trades because it was people, hundreds of people working for Merrill Lynch or maybe Morgan, whatever, running around. We'll see. We bicycle's I'm hoping that the stock certificates. So that's how they were done back then. And obviously, that system collapsed towards the late 60s. There was what is referred to the paper crisis on Wall Street, where at some point in time, the volume of these securities traded went from like five million to fifteen million. And then obviously they couldn't settle things anymore because it was not enough people to move the paper around. So at that point in time, securities started to become electronic. And then to us is well known that there was a creation of a central entity called the ETC., which is a central depository like they exist in Europe before, where all these paper certificates were held. And then they had a computer because they were computer software. They had 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 ETC. So that was kinda like the first step towards digital security. [00:18:33][106.1]
Carlos Domingo: [00:18:33] Because you were starting to. [00:18:35][1.6]
Jeremy Allaire: [00:18:36] Like Swift was the first kind of electronic money, which is essentially like a sort of a couple of things. [00:18:42][6.7]
Carlos Domingo: [00:18:42] So it's 50 cents a ledger that allows you to trade any other kind of time. So it kind of is the same thing. [00:18:49][6.6]
Jeremy Allaire: [00:18:49] Early, early digital forms of money,. [00:18:51][1.9]
Jeremy Allaire: [00:18:52] I would say. Yeah, most of them digitally was fully electronic. I suppose the digital, if you think of electronic, got a for us be first way of doing things that you've done something make them better. It's funny once because at the time they had that paper certificate still existed. They just have what's called a country security, which was basically a electronic representation off of this and that, you know, for the most part or publicly traded securities, seeing you as your major markets are digital today. They already do securities today. You know, for you and I talking in our companies paper based. But the stock of Apple running for the trade is a pretty digital experience. You go on to trade. [00:19:34][42.0]
Jeremy Allaire: [00:19:34] Yeah, I'm I going to say a lot of this is sort of the record of who owns the security. But obviously part of what makes security is interesting is they have features. So, you know, the feature of an equity is it includes the right to vote. Certainly on certain defined matters, it entitles you potentially to two to dividends, to sort of liquidation rights or whatever those features are. The security has features and those features are expressed in an English language typically, or whatever language. But there's sort of that those are those are important parts of the security as well. And, you know, maybe talk a little bit of about how, you know, we're moving into tokenized securities, which parts of the security are becoming truly digital today. [00:20:24][49.9]
Carlos Domingo: [00:20:25] So let's go back for a second. So. So. Security is for the most part, they're digitized. [00:20:31][5.1]
Carlos Domingo: [00:20:31] They don't you know, they're the future sophisticated are not properly digitized, like if you want to get a dividend today for a publicly traded company. there is a process that takes 15 days because there is not a single ledger that contains that beneficial owners of the security. But the growth of private securities, which is actually much bigger than the world of public security, is that is actually very poorly digitized or not digitized at all. And then those securities actually have more features, as you said, because besides the rights, which part of the features of the security, they also have a very complex we're going to try situation because they are not free tradable. [00:21:04][33.2]
Carlos Domingo: [00:21:06] So they have rights to refuse. So they have file periods. You know, they have all the type of file restrictions. So tokenize securities is basically a way to digitize securities, you know, because it's a digital representation that happens on a distributed ledger like public blockchains and they're represented by a token with the additional benefit that then these token is governed by a set of smart contracts, that those smart contracts are kind of like enforce that programmability of the features, as you said, of the security. And I think that's what's revolutionary of this way of digitizing securities. [00:21:39][33.3]
Jeremy Allaire: [00:21:40] Yeah. So, so securitize. You've created a platform where a company can take an existing asset like stock and created a digital representation of it, but also create a new a new security that is natively digital as well and an issue that to investors and then provide all of the infrastructure to actually manage that and the lifecycle that on a blockchains. [00:22:06][26.1]
Carlos Domingo: [00:22:07] That's correct. So basically, I mean, companies digitizing securities is not something new. I mean, if you think about it, because what in the world has been these basic securities for startups? I think that made a difference of what we do is that we use blockchains technology as a way to do things. The security where we would include all the programmability of the security or the future of the rights, etc., and enforce the compliance rules. So the security with is smart, complex on the blockchains. And that's what we do. Obviously, that is a component of our platform that is often something best onboarding and, you know, dealing with setting up a futures set up, but then the actual security and the beneficial ownership track on there on the Blockchains as tokens. [00:22:49][41.5]
Jeremy Allaire: [00:22:50] So you're moving the the actual record, the ability to possess and pass ownership, some of the kind of fundamental rights. All those things are sort of moving into smart contracts and executable on blockchains that they're executable, they're traceable. [00:23:07][17.3]
Carlos Domingo: [00:23:08] I mean, you have it, you know, security, subgoals, that person in your and your company. [00:23:12][4.1]
Carlos Domingo: [00:23:13] My company, that is the number of security that has been approved by the board that you can actually issue more than those. Right. So people I don't know on maybe instances where people have issued more securities on the ones that are authorized on the blockchains, you could actually prevent those things to happen because you can control, you know, how many tokens are being issued to enforce the compliance with my contract. [00:23:32][19.6]
Carlos Domingo: [00:23:33] And you can actually trace the history to make sure there's nothing has happened. Right. So it's a better way to digitize securities is a much more interesting one. I'm sure the next person is gonna 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. [00:23:50][16.7]
Jeremy Allaire: [00:23:50] Yeah. So I want to get to that because it's obviously a core theme of this episode. But just, you know, I think a lot of people are familiar with you know, I have I have stock in a company or I've bond of some sort or some yield instrument. What about that sort of 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. And actually we have a guest coming up in in a few minutes here that's going to talk about tokenization, digital securities in in in the real estate market. But is that is it is is that something that is fundamentally new? Are we going to be able to unlock access to other 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? [00:24:53][63.2]
Carlos Domingo: [00:24:55] I think 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. You know, it's easier for people to purchase it, to trade it, to receive dividends. Like the hold management and asset services component is certainly a component of security becomes so much easier. What I like to think is you could think about music when music got digitized in the beginning we went from having LPs to having CDs. CDs were a digital version of an LP but for the most part, the experience for a while was the same: you will buy something physical from somewhere like Virgin Megastore, you will be purchasing 12 songs from 1 artist with an album and then the morning it became digital then people started thinking about all things that you do you couldn't do before. Well, let's just strip out these songs from all these CDs and put them all in now in a mini-hard disc, and then after the iPhone. it was, "let's just buy one single song instead of an entire album." And then it was, let's not even own the music and just stream the music. So the way I think of this is the same. So, yes, securitization existed. Yes. Digital security or electronic securities have existed the moment you make them natively digital and open a new much more powerful platform, then there are gonna be new use cases that no one can think of that will appear in the future. So, you know, first in the first wave of just "let's digitize", let's figure out something else. [00:26:17][82.3]
Jeremy Allaire: [00:26:18] Yeah, I mean, we've heard really interesting ideas. We've heard you know, I've had a conversation with a firm that's taking an 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. And you know, that that wouldn't have been possible until until this kind of technology in licensing this way. So let's let's talk about let's talk about stablecoins and digital security. So I like to think of these as sort of hand in glove. You know, if you if you have a security, you need to be able to put money into it and you need to go to get money out of it. And if you're doing it on a blockchains, a stable value digital dollar or 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? [00:27:11][53.5]
Carlos Domingo: [00:27:13] So if you think about how to finance so as we said, there are those securities that are already digital. Right. There is money that is already digital. I think a very powerful idea of having tokenized securities on a blockchain and having cash on chain as well as represented by a Stablecoin token is that for the first time in the history of capital markets, you suddenly have two things traditionally have been two separate entities being tracked and separated into separate ledger that are suddenly in the same place and kind of blurs the boundaries between the two and will allow us to do the things that were not possible before. So if you think about, as you mentioned, the price of purchasing a security is kind of a disjointed process, right? You have the security somewhere. Someone has a ledgers saying you own that security, you're going to sell it to someone else. Someone has to update that ledger saying that we have to move from Jeremy to Carlos at the same time Carlos has to pay Jeremy So there's another ledger that contains that cash in a bank account that needs to be sent to another bank account to make sure that these things actually cross and you know settle so that I received my security and you receive. your cash. It's a very complicated thing that has a lot of intermediaries having sometimes taken days to do it. And, you know, the sentiment of execute it still takes two days for private security. It could take weeks. For the very powerful idea about Stablecoins and security tokens, is the fact that they are both represented with the same type of technology. Lets say, you know, assets on Algorand, or USDC on Ethereum, etc. and within the same ledger. And then you can on top of that, use the ability of the Blockchains to do atomic swaps and make sure you can just swap one by the right if add on top of that. Right. You know, programmability for regulation. 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. [00:29:02][109.7]
Jeremy Allaire: [00:29:03] Yeah. I mean, and make a smart contract that represents a you know, like a bond rate at a corporation that says, hey, send us dollars, you're gonna get this, you know, the promise of a return over time, the dollars come in through this contract that go into the corporate treasury of the company as a stablecoin. When time is do, they can return capital through a stablecoins, out through the smart contract to the token holder and the token holder receives it as as something like USDC. And so 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 is this it's it actually is providing the mechanism of how value comes in and out. [00:29:47][44.2]
Carlos Domingo: [00:29:48] That's true. So a bonus is a good Sempo people don't realize about the complexity that is behind the scenes for actually paying, you know, a I like the equivalent of a bong. You're shirtless. Hey, you're a large corporation. I'm your Treasury Department issued a bond and you typically will give it a proper dealer w we don't buy so investors and then you know us. That is sure. We'll have to find out who's going to be an agent that we'd actually issued a security bill, you a central depository like VPC and then those investors will give it to their custodians with which also comes with the ending when you have to pay the bond told him that is like a that you know things going on until you know, the money finds the. She has no idea the best ways that. The beauty of blockchain based securities and stablecoins is that first, there is a ledger that contains the beneficial owners. So they are all tracking real time this trading company. That's the first important thing. And the second one is that you can just disperse the money automatically, making sure you drive the right people at the right time in the right amount without you having to actually know who hold the securities but without having to use any intermediaries to achieve that. That's very powerful because it eliminates the costs 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. [00:31:04][75.9]
Jeremy Allaire: [00:31:05] You just announced a use case I thought was really powerful. And I think we've we've got something going up on on our site talking about it today, which is this I think it's paying dividends and Stablecoins. And one of your one of your clients did that. You want to talk about that? [00:31:21][15.5]
Carlos Domingo: [00:31:22] Yes. So we have started having customers that have issued digital securities that want to leverage that by this day, the securities. This was the first time we needed to do 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 and stablecoins. We actually use USDC, or a registered a bank account and then do the payout. The Interesting thing is that 60 percent of the people opted for getting their money in USDC, which is great because it is cheaper for everybody. It's faster. It's more accurate. And there's this manual process involved. So I hope to see more like a hundred percent native, you know, issuances and payouts that are all done with stablecoins and digital securities because that's definitely their future to eliminate friction and costs. One thing people don't realize is that publicly traded companies, when they pay dividends, it more or less takes fifteen days for you to actually receive the dividend in your account. In that time the money is basically sitting in the bank account, typically with a transfer agent, accruing value for the transfer agent when that money should belong to the investors. So 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 who deserve the money, and get their hands as fast as possible. [00:32:40][78.3]
Jeremy Allaire: [00:32:41] That's awesome. And it's very, very cool. Just maybe you're stepping back a little bit. You've been working on this problem space for a while. And in some ways, we sort of can look at all of this, you know, Stablecoins digital securities. This is sort of like what I like to think of as a market infrastructure journey, you know, and and, you know, we're we're making progress sort of, you know, month and month, year on year, kind of. Where do you think we are in that market infrastructure journey in this, you know, moving into, you know, from early adopters into crossing the chasm into mainstream usage? [00:33:19][38.5]
Carlos Domingo: [00:33:20] So, yeah, you're sort of looking at this problem around March 2017, before we actually funded securitize, we we tokenized. We wanted to tokenize our own venture capital firm. And you show us security on the blockchains. And at that time I can tell you it was a drama. So first it was the didn't understand what tokens where there was also the craziness with the ICO, and people thought that everything that was a token had to be a scam and was illegal even if what we were doing were securities stablecoins were not as popular as the one integrated with infrastructure us today. The user experience of using wallets on the blockchain was terrible. We didn't have qualified custodians that could actually hold security because there was, you know, a lot of uncertainty in terms of what the regulators thought about this phase. There were no blockchain based transfer agents. There was nothing new. So this was really started before that, actually. [00:34:12][51.8]
Jeremy Allaire: [00:34:13] You think about that from from there to there. I mean, in the in the financial market infrastructure, in seeing all that happened in just a couple of years, it's pretty amazing. [00:34:20][7.7]
Carlos Domingo: [00:34:21] Yeah. So they say it's been two years. I'll say I'm not. Yes. If we if I think where we are today, it's kind of frustrating because I thought that we would be farther along. But at the same time, if I go back in time, I look at only two years and I will say maybe 70 percent of the problems are solved. I think it's pretty remarkable. And I think there's a couple of more things that need to be kind of like a fix for this. We need to take a to be kind of like the preferred way of people to basically issue security, because there's no downside to doing it, that there is a lot of advantages. [00:34:50][28.8]
Jeremy Allaire: [00:34:50] So, yeah, absolutely. We've been sort of in a parallel journey. And obviously we're we're seeing we're seeing, you know, things really kick into gear with this infrastructure now. You know, I think one of the things that I love about what you guys are doing and I've sort of seen that 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 digital native corporation and have more and more of what you do manage on chain? What is your vision there, do you think? As we as we look out over time, do more and more of the machinations of corporations through the combination of things like, you know, digital securities, stablecoins, infrastructure, blockchains. There's more and more of what a corporation is, move on chain. [00:35:38][47.7]
Carlos Domingo: [00:35:39] So if I think about, you know, the first time I was a CEO, I was twenty nine years old and it was late 90s. At that time, I didn't know a startup was a bit of a drama because you didn't have tools to actually manage the company digitally. Right. Finally, we do know half, you know, communication methods. We didn't have good accounting systems on ERPs and things like that. So fast forward and I know when I started securitize these amazing how many tools are for managing your preparation. But there is a percentage of things there that are still not fully digital. Like the way we manage cash from companies. It is not for us. And I know we have multiple bank accounts for different purposes. How do we reconcile an acceptable. So that's one thing. Obviously, you can you can manage your securities digitally. You can just get something from Kawthar, but that only solves part of a problem because it doesn't actually allow for trading. [00:36:32][53.3]
Carlos Domingo: [00:36:33] It doesn't allow for, you know, servicing. And some of the things that the securities is doing in a simple, simple way that is not integrated with, with the ecosystem of other tools that are happening on the blockchains. And then as you mentioned, governance, it is kind of like the next step. I think we already building governance tools or securities, but for the entire company of these problems like these Bausch that will allow people to want is there the combination of the Blockchains is probably a few years away, but he's definitely where, of course, that action will go going. Yeah, I agree. I think it's exciting. And as you said earlier, you know, when when some of these innovations happen, like digital music. No, like no one can really even imagine all the things that people would do. And I think definitely a space where there's a bunch of converging things happening and capabilities and entrepreneurs are going to go build amazing things. [00:37:23][50.6]
Carlos Domingo: [00:37:24] Yeah, I think that they should with with those securities are supposed to of this music is that, you know, the music is an unregulated market. If you know what Spotify is that I remember that we're doing peer was. [00:37:37][13.1]
Jeremy Allaire: [00:37:38] It was Regulated by four companies, basically originally, self regulated if you want. [00:37:42][4.4]
Carlos Domingo: [00:37:42] But I remember you it very because you are working on being a student at that time. But when Spotify started, they were going to Peer-to-peer Stern because it was not rich during infrastructure. And that worked better than centralizes streaming, but it worked very well. Half of the time with Spotify, you couldn't actually get the song. I always know it's not a metric number. Right. But but for us, working on your own financial services, you know, if your USDC doesn't work and you can't pay or you feed security these days, the future, because we've done this recce or things like that, this actually has a big impact on a highly regulated market. [00:38:17][34.3]
Jeremy Allaire: [00:38:17] Higher stakes, higher. [00:38:19][1.2]
Carlos Domingo: [00:38:19] Yes, higher stakes. But this is also why it is taking longer for these things to. I've got four for us in the technology industry buy. I'm sure you've seen the time of this to pick up first edition from virtually the same. Every single new innovation gets looked at faster. Well, this one is not because this one has an implication and a little more friction there. Yeah, you will take a little bit longer. But you know, the same way I think that has penetrated other parts of the financial services industry. I am 100 percent convinced it will penetrate security. Some capital markets, companies transform it. [00:38:50][30.6]
Jeremy Allaire: [00:38:50] 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. [00:38:58][8.1]
Carlos Domingo: [00:38:59] Well, thanks for the invitation and keep up the good work of Circle. [00:39:02][2.5]
Jeremy Allaire: [00:39:03] Thank you, Carlos. [00:39:03][0.3]
Carlos Domingo: [00:39:04] Thank you. Bye bye. [00:39:04][0.5]
Jeremy Allaire: [00:39:05] 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. And 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. And so I'm I'm excited to welcome Michael Carpentier, CEO and co-founder of the 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. [00:39:54][49.0]
Michael Carpentier: [00:39:55] Thank you, Jeremy. That was well said. I couldn't have said that better myself. Thank you very much. [00:39:59][3.5]
Jeremy Allaire: [00:40:00] You're welcome. [00:40:00][0.2]
Jeremy Allaire: [00:40:01] 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 against. Maybe it'll be you'll be great to just kick this off with a little bit of background on yourself. What. What brought you to this space and this idea of tokenized assets, digital securities in this particular market? [00:40:20][19.1]
Michael Carpentier: [00:40:20] Well, I've got I've got a twenty five year senior level experience building digital company, so I've never been actually on the finance. Side or the real estate side before, but a couple of years ago, I picked up a book that you could say changed my life. It was a book written by Tom Don Tapscott called Blockchains Revolution. I was absolutely hooked up to that. [00:40:39][18.8]
Michael Carpentier: [00:40:40] And I immersed myself in Blockchains. I read every book. I can't get my hand on every white paper seminars, webinars, some courses at M.I.T. got my professional designation and then started really taking a hard look at where could this be applied? What would be the best use case scenarios. And I settled on the home equity side of the equation. I 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, would 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 trade barriers for investors to get involved in as well. [00:41:22][41.6]
Jeremy Allaire: [00:41:23] Yeah, that's fascinating. It's it's. I also did not come from the financial end and had been in Internet technology businesses and similarly really drawn in and figured like, this is a time when when entrepreneurs can can really change how things work in the financial system. So, you know, this theme that we just heard about and talking with Carlos Digital Securities. You know, this idea of tokenization. So I guess in your use case, you know, home equity has been typically something where liquidity has been challenging and average investors can't easily participate. How how how will digital securities unlock that in your model? [00:42:09][46.1]
Michael Carpentier: [00:42:10] Well, essentially, what we're doing is we're building out from a technological, regulatory, legal perspective, the marketplace to allow homeowners to tokenized our home and in allowing creating the marketplace to allow investors to come in and buy percentage of that. Sounds simple, but the technology bond is obviously complicated. [00:42:28][18.1]
Michael Carpentier: [00:42:30] Right now, if you're a homeowner, there's only two ways to access the equity. You sell the home outright or you take a loan against it. Not exactly a fair scenario. We sort of say it's similar to having a hundred thousand dollars 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. To do that, you're out of your mind. That's the exact situation that homeowners face. So by allowing tokenization process or allowing them to access their other home like a wallet. And for many people, the home is their largest asset. If you take a look at the data in the U.S. alone, the average 55 to seventy five year old only has five to sixteen thousand dollars in savings. Sounds scary. It is. And for many of them, that home is their biggest asset and they should be allowed to access it easily without any financial conferences or any other issues in and around that because it is their patch. [00:43:26][55.9]
Jeremy Allaire: [00:43:27] Mm hmm. Interesting. So, you know, it sounds like, you know, this tokenization of the home equity would allow to kind of like dial that up and down more flexibly to have smaller chunks of your home equity sold or made available, much more frictionless. [00:43:46][18.3]
Michael Carpentier: [00:43:47] Yeah, that's exactly it. [00:43:48][1.0]
Jeremy Allaire: [00:43:49] So what you know, where to stablecoins play a role here? How do how are Stablecoins gonna bring value to the plan from your building? How do you see their role not just in your your marketplace that you're building, but in this realm of digital securities? [00:44:02][13.6]
Michael Carpentier: [00:44:03] Well, from our perspective, first it provides it's a frictionless, timely, stable, programable and secure transaction with virtually no intermediary involved and those costs associated with it. So stablecoins allows us to execute our business in a much more simple manner. Other crypto currencies wouldn't let's do that because there's the volatility aspect of other crypto currencies like Bitcoin or something like that. So we needed that stability. And I think that holds true for other securities. I think Bitcoin plays its role and it has its role. There's a reason why there's there's volatility in that particular cryptocurrency. But most securities can't add that volatility into the situation and they need something to stay scalable. That's what a stable point offers us in this particular model. [00:44:48][44.2]
Jeremy Allaire: [00:44:49] So I guess in your model, this tokenized home equity, people can invest, they can put in the investment using USDC and then the homeowner is actually receiving the capital in USDC. And all that can happen kind of nearly instantly on chain, you know, running running over the Internet. [00:45:07][18.8]
Michael Carpentier: [00:45:08] Yeah, exactly. And the homeowner can make the decision, keep their their holdings in USDC and potentially also become an investor on the platform. And for the investor, the property investor, they'll obviously keep their or 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 for other crypto currencies that they want to change to exchange it back to fiat currency, which is U.S. dollars in this case. [00:45:33][25.0]
Jeremy Allaire: [00:45:34] Right. And. Absolutely. And we see that sort of seamless movement between kind of existing electronic money and pure digital currency and so on. And make making that smooth and frictionless for businesses like yours is obviously something that we're really focused on. So I know that you're looking at this as a you know, this sort of 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 in taking an interest in and tokenization. I'm assuming you've considered how this approach could be applied to other markets. Where else will this play out? What other market segments, industries is this going to happen? And maybe you could share ideas. Right. So entrepreneurs. [00:46:17][42.8]
[00:46:18] Yeah, it's a good question. I mean, anything can be tokenized and proof of that is crypto kitties. I don't know if you've heard of that or not, but absolutely. Yes. And you mentioned the royalties on a name out of Japan end product. And so, I mean, the first thing I have to ask yourself, is there a viable business model behind it before you say you're going to tokenized something? And I know. Are you solving a real pain point, essentially just tokenized someone for the sake of tokenized? But obviously, all these areas are collectibles. Some for example, art was a great company, I would fear, called ______, 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. And any other issue. They ran something like that is security security because it can basically be picked up and taken and moved somewhere. So how do you ensure that it's not being absconded with or taken, taken away? [00:47:20][62.4]
Michael Carpentier: [00:47:21] So those things can be solved through technology ties, mining platforms. [00:47:27][5.8]
Michael Carpentier: [00:47:28] Exactly. You can't pick up a home and move it unless it's on wheels. So we don't really have to worry about the home. [00:47:34][5.8]
Michael Carpentier: [00:47:34] But there are issues in Iran around the home that we have to obviously to ensure that the homeless is not being used for any illicit illicit issues or things like that. But there's other great examples QB, which is a company out of Europe is actually tokenized loyalty programs and taking the loyalty points and tokenized those. That's a great example of something else being tokenized. There's another great company called Brave, which is a Blockchains based browser, and they have tokenized your attention, essentially your time, and they give you a coin called BAT. And you basically you basically get paid for allowing ads to target you and allowing them to use your data, set something up. Right. There's been tokenized. That's essentially just time. [00:48:18][44.5]
Jeremy Allaire: [00:48:20] Yeah, I know. It's it's fascinating. Props as another token tokenized kind of loyalty model that is sort of being utilized in games and other things. A lot of interesting stuff. So in your in your in your investor equity case. How quickly do you think this marketplace grows? What's the total? What's the total market size? What do you think FX participate in this and over what timeframe? [00:48:47][27.6]
Michael Carpentier: [00:48:48] Total market size in the US is pretty significant. It's about three and half trillion dollars every year. Property that's financed, that's solely residential property. How fast will it take off? I think in certain markets will take up quicker and other markets where they tend to be a little more advanced when it comes to their use of technology in understanding technology. We're not going to make a major issue of the fact that we are using blockchains or tokenization stuff with the average consumer, because I think it will 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 a commercial project, projects being tokenized. There's a great company out of Europe, again, called Maddah. That's tokenizing, big, big residential property projects and big commercial properties and tokenizing those and selling off shares of those specific properties to to investors. So 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 want targeted. I mean, one of the things we're moving into is people understand there's 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, the monthly payments. [00:50:14][85.3]
Jeremy Allaire: [00:50:15] Yeah, absolutely. I mean, 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. Obviously, good luck with the upcoming launch. [00:50:28][12.8]
Michael Carpentier: [00:50:28] Thank you very much. You take care. All right. [00:50:30][1.9]
Jeremy Allaire: [00:50:32] So in summary here, tokenized assets, digital securities, introducing more frictionless forms of finance and commerce. Sort of Stablecoins role in that stablecoins with programable money. As you're hearing here, we're still sort of in the first inning with some of this. But these are things that we're gonna 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 gonna be talking about USDC at one billion. Actually, today, USDC crossed one point three billion and USDC has become the fastest growing Stablecoins in history. Seeing nearly 200 percent growth over the past six months alone and becoming a de facto standard as a trusted, compliant digital dollar format and protocol for payments on Blockchains. So to reflect on all of this and also share some really exciting news about the next chapters for USDC, we're gonna 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 V.P. of product at Circle, Jwoww Regin, Auto Group product manager at Coinbase Nemo DALLAL 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. So until next time. Stay well, stay safe and stay informed. [00:50:32][0.0]
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Episode Highlights

Where are we at in the customer adoption lifecycle of security tokens and crypto?

What other market segments and industries will be tokenized? Jeremy asks Chris Carpentier on #themm

Will corporations be tokenized in the future? Jeremy and Carlos Domingo talk about it on #themm

Michael explains how tokenized securities unlock real estate equity previous untapped

Securitize Co Founder & CEO talks about how Securitize tokenizes securities on The Money Movement

Michael Carpentier explains how he got interested in tokenized securities on The Money Movement

Securitize Co Founder & CEO talks about how Securitize tokenizes securities on The Money Movement

Michael Carpentier explains how he got interested in tokenized securities on The Money Movement

Jeremy and Carlos Domingo of Securitize talk about how USDC has had a positive impact on securities

How do stablecoins provide value to digital securities? Chris Carpentier gives his thoughts

Carlos Domingo talks about the features and benefits of tokenized securities on blockchain

Carlos Domingo explains securities and the features it has when it's tokenized on blockchain

Carlos Domingo compares the tokenization of securities to the evolution of the music industry

Guests in this episode

Carlos Domingo

CEO & Co-Founder, of Securitize

Michael Carpentier

CEO & Co-Founder, of Vesta Equity Inc.