Ondo Finance is Dominating the Institutional Tokenization Surge! with Ian De Bode

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Thinking Crypto podcast. I'm your host, Tony Edward, and my guest today is Ian Debode, who is the chief strategy officer at Ondo Finance. Ian, great to have you.

about yourself, where you're from and your professional background.

the consultancy shop. I ended up managing all their working digital assets, so working primarily with all of the trad fis on what are digital assets, where do they not? What can you do with them? And about a year and a half ago I joined Onto as the Chief strategy Officer, really to focus on obviously the strategy, corporate development, go to market, all sorts of fun things that you get to do at a ultimately small startup.

all of a sudden. I mean, at the time, even at McKinsey, I was doing some work in financial services with some of the TRACIFI giants and I was just kind of shocked at how inefficient the system was, quite frankly, and then when I read about Ethereum and the whole concept of smart contract tech stack that could operate twenty

four to seven. I mean, mind you, this was pre DeFi though, you know, I hadn't really seen it, but conceptually, the whole concept of having a smart contract that could execute code twenty four to seven, that could do basic functionality that finance did that really spoke to me from a very early on. So I ended up then trying to do as much blockchain work within McKinsey as I could. I couldn't really need mckenzi, primarily in the visa reasons, so even if I wanted to stay in the US,

I couldn't really leave Kinsey. So that caused me to add a very early onset in my McKinsey career try to do as much blockchain work or crypto work as I possibly could. Back then, there wasn't a lot. Yeah, the first project I did was on tokenization actually in twenty sixteen for some French banks. Wow, And back then it was all, you know, blockchain, not crypto. I mean there's still some of that, but increasingly less so. But that was the first time that I did anything professionally

with blockchain. Back in twenty sixteen.

So you have to like walk them through the concept of why does a native asset to a chain make sense in the first place. Needless to say, a lot of the trad files just don't get it because for a trad FI they have to meet certain compliance requirements anyway, So the whole concept of a decentralized system is very foreign to them because all the time that would then ask the question, but like what's the throat to choke,

like where is a regulator going to go? You're like, well, that's kind of not how this system is ultimately designed per se, and you have to get into the nuance. So there was a lot of education to do, which I think in part is why this whole concept of tokenization of traditional financial assets and adoption by the draft flights truly has taken quite frankly over a decade.

what's blockchain and what's crypto? It's like hard for them to understand its paradigm shift.

the trust assumptions in asset, that's his spectrum. So it's a very nuanced and complex space that just requires some time to work through. And quite frankly, you even see it now on crypto Twitter. In the crypto space these days, there's a lot of these RWA issuers and providers that are starting to build these purpose build chains right like Temple and Arc and you get a lot of debate

around wait is that really a blockchain? So yeah, those debates have been around for ten years and I don't see them stopping quite frankly, for sure.

what the market wants, and you know, what gets real world adoption. I think there's a lot of players right now, which is this is a normal process. It's healthy as well, trying to figure out maybe there are some solutions that exist that don't have a problem, but there are certainly folks like I believe, like you guys on it. I'm not saying that because you're on the podcast, but I

believe what you're you folks are doing. You know, we're going to talk about onto global markets and so forth, but you're really building a key infrastructure item for the adoption of you know, the technology and tokenization and much more.

maybe at the time wasn't necessarily needed. But you know, three four years down the line, people look at that and say, oh wow, that's actually pretty innovative. So I think, you know, time will tell to your point on how this space plays out. It's kind of a cliche, but I do think ultimately we are still pretty early. But sometimes when you look at some of these crypto prices, it's hard to believe.

here with the building but also the speculative aspect of the coins, which it is what it is. Human beings are speculative. Markets are speculative, and it happened in the dot com boom and the real estate boom and all these things. So can't escape it.

on chain. It's a very interesting concept for us also look at.

is a financial component to it. So that's all it is. It's people coming together agreeing this has value. We believe in this, even if it's a silly meme.

a result, how much is that ultimately worth? You know that that clearly it has some merit to it if you look at how a lot of companies are valued

and dividend payouts and the like. But I think the reality is that oftentimes whatever you end up paying for something in the price of the acid, and the price of the acid is dependent on how many people that want to buy a particular thing, right, and so there are a lot of things that people are willing to pay money for, But when you look at the underlying value from a cash flow perspective, it's not really there.

Does that mean that the price that people pay is unreasonable or not right, well, you know, to be debated, because people clearly pay the money for it and are willing to pay for it. So I think it's just different schools of thought whether you look at price or value, and it's a very complicated discussion to have.

time at Mackenzie and you know, even going back to twenty sixteen and now where things are at, I mean, Ian, it's an amazing growth and surge of adoption by trad fight. Are you blown away by the amount of adoption we're.

The liquidity that's available also grew quite a bit. I mean, this really is the innovation of the stable coin that really was a key unlock for this entire space to really mature and unlock, because you could have crypto that was, you know, around in the ecosystem, and you could even put traditional financial assets on a blockchain, but all the way back to twenty sixteen, but what were you going

to do with the actual settlement of these instruments. You needed a cash leg, which ended up being a stable coin leg. So stable coins truly were the first zero to one innovation I think in how to make all of this work, which back in twenty twenty sixteen, obviously, I mean stable coins existed, but they were so small

it didn't really matter. I think, DeFi was the other massive zero to one innovation where all of a sudden people could actually see how this could work in the twenty four to seven autonomous fashion, And there was a ton of innovation happening back in twenty twenty twenty twenty one in the space. And then the last thing that really unlocked post twenty twenty three really is the regulatory

clarity and the attitude of the regulators. I think that was the final key unlocked that really needed to happen, where the ETFs played a very interesting role. Ultimately, that was the first introduction of crypto into the mainstream where it was very very clear that there was a ton of untapped demand and crypto ownership and appetite was a lot broader than I think what the other administrations had expected, and I think that created a lot of visibility for

the space. Obviously, the Trumpet administration right now is very crypto friendly and wants to make America the home of crypto. But all of those things combined over the past ten years, I think have finally led us to this moment and the amount of trad fi interest in almost fomo quite frankly that I see in the space is really incredible.

ONDO for those who may not know what is Ondo and how's it work and things like that.

give real utility to these assets. We did that back in the day when we developed the flux Finance protocol, which was the first example of how a rebuild market could work with tokenized treasuries as collateral. So we started our entire journey, really, i'd say, back in twenty twenty two twenty twenty three, by tokenizing treasuries in the first instance. We looked at stable coins as having product market fit.

Stable coins are beautiful products, but they're not perfect they actually don't give you very good investor protections and they don't pay out yield to it's euroup to their holders, and so to solve both of those issues, we believed at a token its treasury fund with a lot out of investor protections was actually the way to go. We started doing that with a product called OUSG. It's a

permissioned tokenized treasury fund. At the time, it was pretty innovative because it was the first time that a tokenice treasury fund, which is essentially security, could be transferred peer to peer on chain as long as you were onboarded with us. That also meant that you could allow list whitelist a smart contract to then use this asset as collateral in that ended up being flux Finance. So we started really with the first peer to peer transferable tokenize

treasury fund. We have since expanded that mission to tokenize other tokenized treasury funds that are permission lofts in the secondary market, very much like a stable coin, but it still pays out yield on a daily basis. And most recently we also launched onto Global Markets, which is a platform to tokenize any stock and etf that you want.

essentially any institution can come plug in, launch their token ied asset and push it out to the market.

all fully backed one for one. So for every token that we issue, there is a let's say it's a token iced Tesla token, right, there will be Tesla stock sitting in a brokerage account that is itmovable, plus a large collateral buffer on top so that people can rest assured that there's always enough collateral backing the tokens out there.

And ultimately the benefit of the platform that we've developed is that we can put in stock and ETF on chain, which is very helpful for a lot of the crypto exchanges. In the crypto wallets that really want to offer their users access to these stocks and ETFs, but for them to work with the traditional financial system is a lot more complicated than if they can just use tokenie stocks and ETFs, where the settlement can happen in stable coins.

These things can trade twenty four to seven, all sorts of benefits relative to the traditional system.

to Ondo, but just in general, when the tokenization of an asset takes place, and I think you touched a bit on this that you know the asset sits in the brokerage, but how do we verify that? How do we see the bridge that connects the tokenized asset on the blockchain to the physical asset, whether it be gold or if you're tokenized real estate or if it's stock. Where can one say I need to see that bridge where all this is connected.

It's a debt instrument relative to the issuer of the tokens. That issuer can issue these tokens that is really debt, and they then hold the assets underlying or backing that token in a clearing broker account plus a collateral buffer on top. We have done this the similar structure that we did for USDY, that is that permissionless tokenized treasury product. We've had it for about two years you've take out in the market. We have an agreement with a third

party agents called the collateral Agent. They have access to our brokerage accounts, so they can literally just see the value in the account on a daily basis, make sure that whatever we are holding that we say we hold, we actually hold, and that we have everything fully collateralized, plus the collateral buffer on top. They post daily attestations for everyone to see, so that anyone can go to our website and take a look and say, hey, it's

really fully backed. They also have a legal obligation that when we as the issuer, failed to meet a redemption in a timely matter, or if they look at the account and say, oh, a drop below a certain level, they are legally obligated to seize all of the assets, sell it for cash, and repay the debt holders of the issuer, which is really the token holders in the first place. So these things are structured in a fully

bankruptcy remote way. When you hold a token, you actually have a security interest in the collateral that is perfected by a third party, and that third party also posts daily attestations that anyone can take a look at.

a situation where the tokenized assets need to be in a custodian or is it just all in smart contracts?

We do have support from some of the major custodians in the space, so that also an institution can feel comfortable custodying these assets in the way that they want.

never been able to. And I'm not sure how many people know about this, but if you're in some country in Africa, you can access the New York Stock Exchange or free platin America right, but now you can and that could change your life, opening up investment opportunities, wealth opportunities, and obviously some banking opportunities with stable coins and so forth. So tell us about your plan to expand to other markets and are there regulatory hurdles or not necessarily yet?

get a brokerage account. And even when you can, the fees to buy any of these products, both FX fees and then just normal you know, buy and selfie are quite frankly absurd, right, So we are very excited to have a platform that we can put all of these US capital market assets on crypto chain and make them available to that global audience, so that anyone that has a stable coin can ultimately acquire any of these assets in the secondary market. So that is a pretty meaningful

innovation in and of itself. These things are permissionless bear asset, right, so in the secondary market they can flow wherever. It's very similar to a stable coin tablecoin. You can send

wherever you want to. If you engage in a peer to peer transaction with a stable coin or if you use it in DeFi, there's no there's no regulators are going to tell you, hey, you can't do that, right, But if there is a called it essentialized platform that decides to market these assets in a specific jurisdiction, and you know, has billboards in a country that says by token is stocks. Now that probably means a license. So

it kind of all depends on how it's implemented. But fundamentally, our platform is set up in such a way that these assets are are available to a global audience. Anyone with a stable coin can find their way.

network effects, is this going to change markets forever? And even private equity markets? You know, let's say the SEC opens up accreditation and private companies can you know, get their equity out there in a tokenized format. Plus you have the token ied equities and stocks and so forth that now you have liquidity coming in from around the globe, which once again we've never.

why are you tokenizing stocks? Right, Like, why why not like real estate Because most people when they think of tokenization, they think of real estate and other types of asset classes.

We've always believed that makes most sense to tokenite those assets that people globally already want and that you can use as collateral on chain, because that's ultimately you know, the two benefits of tokenizing an acid is you can open it up to anyone globally because now it lives on blockchain reels and it can move twenty four seven. And number two is you can use it in smart contracts.

Most of the smart contracts on chain leverage some acid in some form of collateral, whether that's for staking, for margin purposes and the like. So for both of those reasons, you typically need an asset that has very good pricing transparency, right, Like what is an asset worth? People want to be want to know that whatever it is they're buying is they're buying and at the right price. And that's really hard to do with assets like real estate like pe,

where there's a lot of information asymmetry. But when you do that for dox ETF treasury acids, there are incredibly liquid markets out there in trap FI already where pricing discovery occurs. So once you put these things on chain, actually pretty straightforward to figure out what these things should be worth. So that's kind of why we put stocks and ETFs on chain in the first place, because people

feel very comfortable buying them. So if you get all of a sudden an avenue and a technology that hundreds of millions of people are now going to be able to buy these things almost frictionless, I think there's real potential for that to change market structure down the line. It's kind of very similar to how even the US Secretary of the Treasury now it's saying, hey, you know, stable coins, we expected to create meaningful demand for US

treasuries globally over the next five to ten years. I think at some point people will say the same thing, but you know about increasing demand for US capital markets globally. But how long is that process going to take? I don't know, but it could be very meaningful.

ultimately these processes become more efficient. So there's a higher yield to be earned, and there's new sources of yield that you could tap into, particularly if you enable it for these crypton native primitives like staking. So that's where the trap files really get very excited about how all

of this could evolve. I think again, it's going to take a little bit of time for all of that to play out because right now, I mean, we're very excited to put these stocks and ETFs on chang, But I think the reality is that DeFi isn't really built with stocks and ETFs in mind. Like this simple scale that these things operate at. I don't think DeFi was particularly well designed for. So take your brokerage account, right,

I have a brokerage account. I've got two actually, and I can buy let's say one thousand or so assets, maybe even more in them and then I just hit a button if I ever want to get a margin loan, and it just happens automatically, no gas fees paid, Like there's no problem. They can look at the thousand assets that I hold and I can get margin on all of them. So to speak. That's not really how defis built, right.

If I have a thousand different stocks in ETFs and I want to get margin on it, I can't just hit a button with no gas fees and then get a margin loan twenty four to seven on my holdings. I think there's going to be some changes that are required in the DeFi ecosystem to really work with the scale of stocks and ETFs, But I have no doubt that a very eager developer ecosystem is going to adapt

to that pretty quickly. Now that these things are actually on chain at the right price, with deep liquidity, with the right structure, I think it is actually going to be very exciting to see how the DeFi ecosystem evolved. Yeah.

will take time. I'm envisioning twenty years from now potentially, you know, after institutions have set up the infrastructure you know, folks like yourself and onto have set up the infrastructure.

is actually pretty straightforward, right. All you got to do is take a traditional asset, put it in a custody account, whether that's a bank account or a clearing broker account or whatever the appropriate custody account is, make sure that you immobilize it, you issue a token against it, and tada, right,

you've tokenized the asset. That's actually pretty straightforward. The hard part, oftentimes is doing the pricing of that asset on a real time basis and doing the subscription and redemption between the traditional world in the unchained world, in the twenty four seven manner, because a lot of these trap fi systems that you need to tap into to acquire an asset or sell an asset, they don't work twenty four to seven, whereas the crypto ecosystem does. So that liquidity mismatch.

How you bridge that? That's the really hard part. Yeah, that makes sense.

heading in. I see these stock exchanges, you know, exploring ways to open longer, and it's so fascinating to see them get you know, getting disrupted in a way and they're trying to catch up and so forth. Do you think by twenty thirty we're going to have full twenty twenty four to seven three hundred and sixty five day markets?

to do over the weekend. And then you look at the traditional financial markets, which are far larger in size still but they don't. It's a very weird, weird dichotomy. So I think you'll see that the traditional exchanges see some pressure to move towards twenty four seven, increasingly, particularly once the stocks and ETFs are now moving on these

blockchain rails that can move twenty four to seven. I think there's a real chance that the crypto ecosystem moves towards twenty four seven trading of these assets already even before the traditional brokerage accounts to And then over the next five years you start seeing those traditional financial systems actually catch up and upgrade so that they can support twenty first seven as well.

ever relax? And I mean it takes a little bit of getting used to, but over time, it is what it is. And I think with traditional financial markets it's kind of going to be the same thing, but it does require very big changes in how a lot of these traditional financial firms operate that are not to be underestimated.

you know, the system finds balance again. I think we're seeing a lot of that, but at a very accelerated pace with the Internet, social media and now twenty four seven networks and pretty soon Aya. Yeah, absolutely.

adoption news that I read for ONDO, like connects us by JP Morgan using the Onto blockchain. Tell us a bit about that and maybe some other example of institutions using Onto.

do that twenty four to seven. And that's essentially what the Connectionus platform is. It's a private ethereum blockchain that they've implemented years and years ago that can operate twenty four seven and where JP Morgan deposits can move around

between their clients. We then had a collaboration with JP Morgan and chain Link as well, where Channeling provided the infrastructure to connect the Connectsus platform twenty four to seven JP Morgan platform through the Onto chain, where a lot of the real world assets live and where you can have an ecosystem of trading that can happen twenty four to seven, but like that connection between the two is

what really needed to get built. So we partnered up with JP Morgan and Chaining to make that happen so that a transaction could occur where two investors that had an account at ONTO and had an account at JPM Morgan could transfer between themselves a tokenized treasury fund on the atochain, yet settle that transaction on the JP Morgan

network with cash. So that was the pilot that we did, and the first time truly that you would have a public blockchain designed for RWAs really engage with the traditional banking environment that could operate twenty four to seven. And it's all about that connectivity between the on chain environment and the trad fi environment because as mentioned previously, tokenizing

something's pretty easy. Got to learn how to deal with the liquidity mismatch, and these types of pilots really help tackle that liquidity mismatch that normally exists between trat fi and the blockchain world.

they can work twenty four seven right. For that purpose, a private blockchain, it's great. Like we as an asset is sure. As a tokenization company, I love it when a trast fly has a private blockchain network because then I know their systems, or at least some of their systems can operate twenty four to seven, and that makes our lives significantly easier to tokenize an asset on a real public blockchain, which can then be integrated into DeFi tell.

the communication. Is it like atomic settlement, Like how fast is that happening?

the Onto Finance MasterCard partnership recently or tell us a bit about that.

to the Connections platform, but this one it's across various banks. Again, the whole purpose of these pilots and agreements and partnerships is that we can connect into track fire rails that can operate twenty four to seven, so that when the trad Fi client wants to subscribe to our tokenized treasury assets that live on public blockchains, they can actually do so with cash in their bank account instead of a stable coin on chain and really pay us twenty four

to seven subscribe to our products twenty four to seven with the trad five rails like that is a pretty meaningful innovation because there's a lot of institutions out there that, you know, if possible, they'd like to keep at least some cash where they've kept it for years and years and years, yet they still want to subscribe, you know, to our assets and mint them on public blockchains to

do a wide variety of things with them. But the master Card Multi Tooken network kind of enables these particular institutional clients to stay on their trad Fi rails. It still have them operate twenty four seven.

way faster than these guys are used to. And now with the tokenization of stock and ETFs and making that available to a global audience, like all of the building blocks right now are there were really meaningful innovation and how capital markets operate and how payments operates, obviously with stable coin, right so, it's going to be very very interesting to see how the next five years.

The Genius Act pass huge for the industry, Clarity Act coming up this fall. Do you anticipate we're going to see this massive innovation boom because the market has clarity. No one has to look over their shoulder anymore.

files are going to be able to do. But it's clear that this Congress can actually pass bills, and it's clear that digital assets is the priority for the ADMIN. And so with all of that in mind, all of these strat files truly are racing towards having a digital asset strategy and starting to implement it. Because crypto is also starting to be at a scale where it's very very hard to ignore. Right you're confronted with this ecosystem

that keeps growing. Ta will coin TVL is now close to what three hundred billion token I Treasury is starting to accelerate almost at ten billion. There's now stocks and ETFs coming on chain. So a lot of these strat fis look at that and say, hmm, interesting, I guess I can't ignore it. Historically they had the excuse, oh, there's no clarity, regulatory compliance and the like, but that's pretty soon going to drop so there's real, real appetite

and interest to move on chain. So that's why you know, companies like Onto are very excited in helping these strat fives move on chain because they often do need partners to do that. These strati files don't have the capabilities and skill set to do everything by themselves.

as an asset manager. All of a sudden, you have assets now, stocks and the like that live on public blockchain rails where permissionless innovation is possible that has never ever happened before. Right as an asset manager, before you had to figure out how to design and structure products

with these very old and clunky TRADFI rails. But now you've got all sorts of tick stacks that can operate twenty four to seven with a defied developer ecosystem of thousands that look at this stuff and say, hmm, what can I build? That's never happened before in the history

of mankind. And so the level of innovation that you're going to see what people are going to be able to do for what passive investing looks like if you then throw in AI as well, I think truly what investing is and what you can do is going to change pretty dramatically over the next five years. It doesn't mean that mainstream adoption is going to arrive in the next five years, but a lot of interesting things will

start to happen. And I think it's too meaningfully disrupt asset management, wealth management, brokerage, robo advisory, and just broader investing at a global scale in a way that has never happened before.

if you could create your own metaverse, what would theme be?