Dennis O'Connell: The Next Frontier in Crypto is Tokenization!

Hey, folks, we are recording at Chainling smart cohon event and joining me is Dennis O'Connell, who is the president of EERC three six four three.

Dennis, great to have you.

Thank you for having me. Appreciate it.

Yeah, Dennis, I'm very curious to learn about what you're doing as it relates to building ethereum and different types of ways people can tokenize and so forth. But tell us a bit about yourself. You know where you're from. How'd you get into crypto?

Oh?

Yeah, I love, I love my crypto story.

So my background, I'm from original Long Island, grew up outside of New York City for most of my life. My background is actually engineering, mechanical and aerospace engineering. So I worked FANASA for a couple of years, and then I did almost two decades sprint in capital markets on derivatives trading and even collateral, so working on a few major banks along the way. And then I was red pilled by a very famous bitcoin kol Andreaspolis in twenty thirteen.

It's been it's been venture ever since.

Man, I love Andreas.

I learned a lot about bitcoin and blockchain tech in early days on Andreas as well.

He's like, it's like a write of passage to listen to him.

Right, Yeah, yeah, it was, And we thought it was a hobby for a while. And so like I consider myself part of that twenty seventeen generation of crypto, like Ethereum was my like first real blockchain or it's just really getting into it, sure, But before that I was messing around with A six and all the other stuff we could actually mind yourself.

But I never thought it would be a full time thing.

And now it is my full time and it's it's fantastic.

So tell us what is your C three six four three?

ERC three six four three was called a permission token standard. So everyone knows er C twenty or a C seven twenty one, right, So where does these numbers come from? So easy to say, well, it was the three thousand, six hundred and forty third proposal for an Ethereum Improvement EIP right and your C twenty and seven twenty one we know so well because of how well adopted they are.

Your C seven twenty is the fungible token standard.

You're seven twenty one is a non fungible token standard. You have eleven fifty five. You have implementations like fourteen hundred, a few flavors, right, you have the vault standard like four six two six. So there's actually a lot of open standards in Ethereum. Ethereum actually prides itself as being the leader in terms of community adopted standards. Right, So ear C three six four three is a is a

When we'll get into all that, So.

Is this conducive to like institutions that want to tokenize and put different types of assets on Ethereum.

So right now there's two different ways people will tokenize. Generally, they generally maintaine ARC twenty that is either a claim or IOU or something like that where it is no permission infrastructure. And that's like your token is stocks, so you see the lot popularity you're of and that's usually.

For fungibility kind of reasons.

Right.

And then you have what we call permission tokens, and these are your fourteen hundred and three six four three tokens, And that's where tokens where you actually have the actual ownership value on chain. And those are needed because the regulators say, hey, if you want to go on chain, we need these extra things. We need identity, we need control, we need registry, and we need compliance. So the future of our WA's is going to be permission because fundamentally

So you're ERC three six four three. Is it a company and a group of developers? How are you guys working on this and how do you benefit.

In the ecosystem so to speak?

Yeah, great question.

So the ARC three six four to three is the RWA permission token standard for ethereum. Right, and then we have the nonprofit association that myself and Luke Flampton of tokeny apex co founded, and Luke and I created the association to help people organize around the standard to understand what it means to be a permission token.

And it's been incredible.

We've been implemented on over thirty five billion in assets on and off chain for public and private networks. We have over twenty three jurisdictions around the world that have approved the standard, including recently with Project Crypto with the SEC's Innovation Exemption, and we just got a permission in Germany as.

Well with the EPG.

And we have over one hundred and forty institutional members as part of the standard, and we've been working with big institutions here in the United States, including with DCCC.

So it's been incredible.

That's great. I mean, that's a lot of institutions that you're working with.

Yeah, and you mentioned you got the SEC approval on these, right, You got the rubber stamp of approval in that front, which is critical. So it's it's now a matter of like educating institutions, teaching them how to use this standard to build what they want to.

That's that's exactly right, and we don't.

We don't believe we're for open standards, so we don't push everyone has to use three six four three, but we do push for permission unchain and the SEC Crypto Task Force has been humongously positive for us. So we were mentioned in innovation Exemption part of Chairman Actin's speech.

We went to the task Force.

And so if you're in the US and your issuer and you want to do a regulation exemption, go to the SEC, say using three six four three and go from there.

That's great.

And then do you get the support of the Theorem Foundation And you know, folks like that.

I have to give extreme credit to the Theorem Foundation. We have built r C three six four three for three years and this year I have to applaud the Ethereum Foundation in a lot of ways. First of all, I'm always gratified that I got to even work with them or talk to them.

I mean, they are truly impressive group of people.

They are also a very diverse and massive group of people with a lot of great ideas. And you know, I have to give a lot of credit to to Tomas, who's really set the new standard for the company for a lot of people on the Protocol team, Privacy team and others who have really shown the capability of ethereum and theory Foundation. I think it's a new energy for the Foundation and we at the ARC three six four three have been embraced now the Foundation and we agree

So can this standard be used on the roll ups? The L two's are just the ethereum layer.

Well, absolutely, we're We're all on every L two that's EVM.

We are on ethereum maynet.

So any EVM or EVM compatible where where they're.

Oh, that's awesome.

And what are your thoughts on how etherorem is getting just like mass adoption from these institutions, you know, like black Rock the first place they launched their biddle when you took an as money market fund was on etherorem. Yeah, so you feel like Etherorem is like let's say the Blayer, like the Internet where people can just co build on it is to me, is the only answer.

Right now, Ethereum is the only one that's been battle tested at scale. It has the depth and diversity of

For sure.

Now we've seen a lot of Layer twos get launched. But what's interesting and what really piqued my interest was Sony. They build a layer to an etherrem called Sonium. And it's not just your run of the mill. Okay, here's a layer two, here's another layer to but a corporate building it. Yeah you see more corporates Deutsche Bank two? Yeah, do you see more corporates building like their own layer twos? And what I mean, I think it's a great question, right.

I think it will depend on what they hope to accomplish on that layer two. Right, So you could generally classify layer twos into performance privacy application. You know, some people make the argument that what a blockchain sell, they sell block space. Some points, some apps become so large that they over consume all the block space, and so maybe they're better off on an app chain or whatever.

Which I think myself in the community really never believed in.

I thought they were great pocs, but they would always die in a tropic death because you never would have the liquidity as an open public system. So then we kind of moved into hybrid and so L two's are sort of like now that new kind of flavor.

But it's really more an indication.

Institutions are more and more embracing open public blockchains, which is a good thing.

Yeah, we've seen over the years kind of the capitulation, if you want to call it that, from folks who tried to build a private permission chain, but then it creates the same wall garden problem that existed in TRADFI.

Yeah, well it's a new I call it newter blockchain, so that they want blockchain without the actual parts.

And yeah, I think I got this from Andreas.

But one thing Andre's installed in to be is do you see blockchain as another technology like a database or cloud or do you see blockchain as a society shift in finance? And the way I see it as a sidal shift in finance. So to to take the technology and new itter it down, then you can get people say, well,

So, you know, giving your experience in TRADFI, and given you know, your introduction to bitcoin into early days with Andreas, what is it like looking back and where we're at now with I mean the major banks, the major Wall Street firms all now looking to build tokenized stable coins, ETF's, custody, trading, you name it.

They're trying to do that.

I mean, to me, it's ironic and painful.

I was so early into this, you know, going from hey, I think this is cool play with the asex to then getting the courage in like around twenty seventeen, largely with our three and when they did the one hundred and seven million dollar raised with all the banks, so now where it was no longer voting to speak about blockchain inside, you know, my day job. And I think one of the things that people realize is how much being in the industry was very painful because a lot of people thought it.

Was a fraud there, it was a scam.

They didn't really believe in the tenants, and so having to have those tough conversations with people who really were almost antagonistic.

And that's why I say about bitcoin.

Bitcoin was meant to be the most antagonistic thing to the Wall Street system is fully transparent, fully settled. It was totally disintermediated, and that that challenged a lot of people. And now to see all these institutions to come around, it's still unbelievable.

But there's no reason to sit back.

And I think the danger has been a complacency that if we don't continue pushing and working and innovating, that blockchain will just be here for the future.

And I don't think we're there yet.

I know it seems big, but you know, we need to continue to innovate and really get to a level that.

We are not even at yet, like we have to go to. I'll put to you this way.

There's probably a dozen tokenizers on Ethereum, maybe more. You know, if everyone those tokenizers tokenize a trillion dollars, they would tokenize twelve trillion dollars, right, which would be fantastic number. DTCC alone does eighty seven trillion, and they do several quad drillion in transaction volumes. So we're like barely the size of Navidia and Apple combined. Right, So we are. No, we're not at the gates yet. We're not at altitude we were, you know, not so low where it's so disruptive.

We're getting more matures in industry.

Part of that maturity is the standards, but it's also the quality of the projects.

Do you believe that that growth that you're talking about and that search. Maybe the hockey stick effect, right, will happen when the market Structure bill passes?

No, I don't. I think it will.

The market structure build to me is reflective, like it's already capturing what's been there. Sure, what will hockey stick is when serious institutions start bringing serious assets. And what's hurt this industry has been a series of you know, setbacks with bad actors that have really materially hurt the credibility of this.

And so when you want to.

Get like real people in real places and they see some of the antics as happened. You know, I'm being nice and not gonna name names, but you know, it's a huge setback for the industry because like, okay, not yet. And so finally we have an administration and recultory infrastructure in the US.

It's more reflective of the rest of the world that has.

A bit more forgiving, bit more patient, but overall needs to mature a lot more.

Absolutely so to al us.

What's on your roadmap as far as development, what can we expect in twenty twenty six and things like that.

Well, my company PSG, we are launching a major platform. We're calling it the world's first on chain investment bank. So we'll be giving out more information in the weeks to come. But we believe fundamentally that permission tokens you're C three six for three.

The biggest challenge is that it is.

Not accessible to DeFi, and so we don't believe in permission DeFi. I call it oxymoron right right, So permission has its place when you want to share registry and control.

However, getting into.

DeFi, and we're working some really great partners on this that will announce.

But my main objective for the year is to launch.

What we call permission vaults, the idea that you could take thirty six forty three permission tokens, encumber them and emit permissionless versions stable coins or twins, and get them into into DeFi. And so we'll be announcing that with

A lot of work there as well.

Yeah, we got lots of work to do as an industry to get to you know, what you were talking about before, and to get trillions of dollars of assets on chain, you know with regardless of DeFi. You know,

But how do you how do you see DeFi growing?

Do you think the US you know, they let off the gas a bit and they let things go well.

I think DeFi really has been whacked from the regulatory side. In some cases, they've had very friendly frameworks like VASP in EU virtual ASIT Service Provider and then the most friendly VIRA in Dubai, the Virtual Assets Regulatory Authority, So they have found areas and jurisdictions friendly. Then there's jurisdictions that were just like open, like your offshores like Bermuda, Panama, that sort of thing for a first world regulatory whether

Here at smart Coon this week is chain Link.

Is part of the reason why I believe it is my personal opinion of defied two point zero. Why haven't we had like a defied summer two point now is because when you look at a lot of the technology of ethereum and other application layers, they really lack a significant data later right, Working on trading data for over two decades, data is everything, right, and you know, I could just rattle off, you know, location of the asset, how do you identify the asset pricing of the asset

Yeah, I love DeFi I love the ability to you know, be my own bank, so to speak, right and go out and do these things.

And I hope the regulators can get it right. And they don't.

You know, they don't come down too heavy, and they let the innovation flourish. And yes, you have to put guard ris in place, I understand that, and but I hope the United States can get that right because I know that's the market structure is in play, but it doesn't include DeFi.

No, no, But I think I think where we are in environment with the SEC and CFTC and just OCC and in general, they're open, right, And I think it's a little bit of maturity on our side, on the blockchain side, to come around to standards, come around to common asks. You know, the government's down in the business of choosing winners or losers, right Like everyone benefits equally from from different things. So it's what I call a

A lot of people were scared about it.

Now with the Seccrypto task, for many firms are going and having a great experience, but you can imagine the overwhelmingness from the regulators because they have a gap, right, they have rules and laws, and then you have new technology and then how do you bridge that gap? Innovation exemption is a great way to fulfill that gap, but defies a whole other level of heart because how do

Dealer, and that was crazy classification.

And what we're actually doing in DeFi whether it's a credit lending facility or whatever that's on you know, the industry to come together and say, hey, we think it's a virtual asset activity. We think traditional activity that's really going to be depending on the assets themselves present. But I don't think the answer, and I don't think the regulators think it as well, is to lock down define

Yeah.

Absolutely, Denni's great stuff. Thank you so much for joining me, and I'd love to have you back on for you know, as things launch on your end and we get the details from you.

Thank you so much, Thank you so much, appreciate your time.