Abstract
The Spaces session hosted by Tim, featuring Ross Shemalik, Abhishek, Sophia Schluger, and others, delved into fragmentation and tokenization methods. Discussions centered on the importance of data validation, the future of ERC standards, integrating multiple standards, and the challenges of liquidity in tokenized assets. Ross highlighted issues with private equity price validation, while Sophia emphasized the need for regulatory compliance in tokenizing bonds. Abhishek and PG explored decentralized data validation and potential solutions like asset wrapping. Key takeaways included the evolving landscape of ERCs, the necessity of validated data and liquidity for tokenized assets, and ongoing advancements in blockchain-based financial products.
Highlights
- The proliferation of ERC standards necessitates better integration and interoperability among them.
- Liquidity remains a critical issue in tokenization, especially for private equity assets.
- Decentralized data validation could be key to preventing data corruption and ensuring trustworthy tokenization.
- Regulatory compliance is crucial for gaining investor trust in tokenized financial products.
- Innovative solutions such as wrapping assets could address inter-chain compatibility issues.
Outlines
- 04:31 – Introduction and goals of the Spaces session.
- 05:03 – Ross discusses fragmentation and tokenization methods.
- 05:40 – Ross provides an overview of his company’s tokenization efforts.
- 07:54 – Ross mentions $300 million in tokenized assets and discusses industry standards.
- 08:28 – Introduction to Candy Finance’s approach to tokenization.
- 10:23 – Overview of ERC standards and future directions.
- 10:40 – Discussion on multiple ERCs and their integration.
- 12:44 – Ross talks about the evolution of tokenization and EVM chains.
- 16:39 – Importance of regulatory compliance and decentralized data validation.
- 19:02 – Sophia introduces PVO1 and discusses regulated digital bonds.
- 21:41 – Discussion on the future of ERC standards and asset wrapping.
- 24:10 – Technical challenges and liquidity in the tokenization space.
- 29:10 – Importance of market makers and liquidity providers.
- 34:12 – Role of fractional ownership in enhancing liquidity.
- 36:14 – Data validation and the role of decentralized oracles.
- 42:00 – Challenges of price validation in private equity.
- 47:05 – PG’s thoughts on decentralizing data validation.
- 51:14 – Regulatory challenges around tokenization addressed by Sophia.
- 55:30 – Final thoughts on the importance of collaboration and compliance.
Discussing Tokenization and Fragmentation: Insights from Experts
Introduction
In a recent Twitter Spaces session hosted by Tim, industry leaders including Ross Shemalik, Abhishek, Sophia Schluger, and PG gathered to discuss the evolving landscape of fragmentation and tokenization methods within blockchain technology. The session was packed with expert insights into tokenization’s challenges and future prospects.
Tokenization in Real-World Assets
Ross Shemalik, a co-founder of a leading tokenization company, provided an overview of their operations over the past several years. He highlighted the development of their proprietary smart contract standard STV2 and their goal to bridge the gap between different standards used by various tokenization providers. The focus was on the need for interoperability and co-utilization of assets across different chains.
Liquidity Challenges
A significant portion of the discussion revolved around liquidity issues associated with tokenizing assets. Ross emphasized the current difficulty in obtaining reliable price feeds for private equity, revealing that his company had created its own price oracle to address this issue. Sophia complemented this viewpoint by explaining how her company ensures liquidity in their tokenized bonds, utilizing a mix of smart contracts and regulatory compliance to provide investors with confidence.
Data Validation
Abhishek from Candy Finance and other speakers highlighted the critical need for accurate data validation in tokenization. They discussed how current systems manage data validation and the potential for decentralized data validation mechanisms to prevent data corruption. The concept of multiple verifiers working together to approve data was seen as a promising solution for the future.
Future of ERC Standards
The panelists also tackled the future of ERC standards. Abhishek pointed out that different business cases necessitate various token standards, while PG mentioned the potential of wrapping assets to ensure seamless inter-chain transfers. Ross added that interoperability between standards is essential for the ecosystem’s growth.
Regulatory Compliance
Sophia stressed the importance of regulatory compliance in gaining investor trust, particularly in the case of tokenized securities. She described how her company adheres to strict regulatory measures to offer a transparent and reliable product, a sentiment echoed by Ross who pointed out the need for thorough due diligence and proper investor protections.
Conclusion
The session provided a deep dive into the mechanics and future of tokenization, underlining the importance of data integrity, regulatory adherence, and the interoperability of token standards. The experts agreed that while challenges remain, ongoing innovation and collaboration will drive the industry forward.
Transcript
Speaker 1: Ashish Sood (Chief Product Officer at Polytrade)
01:44 – 01:46
Hello, GM. Can everybody hear me?
Speaker 2: Ross Shemalik
01:48 – 01:49
Yes. Hello.
Speaker 1: Ashish Sood
01:49 – 01:51
Hey, hey, Ross, how are you?
Speaker 2: Ross Shemalik
01:52 – 01:54
Fine, thank you. Hello, Tim. Nice to be here.
Speaker 1: Ashish Sood
01:56 – 05:40
Thank you for being here. Before we kick off the space—I wish we were cutting cake, but we’ll stick to the space kickoff—I think we’ll wait for others to join, maybe just chill around for a while. Hey, guys, so I think we can just kick off and get started. I think people will keep joining. The spaces are also being recorded, so there will be blurbs all around town for this. So let’s just get started.
Sure, perfect. Alright, cool. So welcome to the RW RIL spaces. We do this mostly on Tuesdays and Fridays. We’re basically doing these spaces to tackle the tough questions and how we all can solve them together. I think today’s topic, fragmentation and tokenization methods, is very close to us. We have currently been working with 50+ protocols. We’re on 11+ chains.
We’ve seen a significant number of standards being deployed, and aggregating those has taught us that we truly need to figure out a strong standard altogether. We also authored our own ERC. So like I said, this topic is something that we’re really looking forward to. While we do this, I think the first round can start with introductions. I have some interesting questions. We can start there. Ross, do you want to take the stage?
Speaker 2: Ross Shemalik
05:41 – 07:52
Sure. Thank you for inviting me. It is a pleasure to be here and happy to make some noise and have some fun on this Friday afternoon. So, I’m Ross Shemalik, the co-founder and Chief Operations Officer at Starbucks. We have been in tokenization and real-world assets for five to six years now. We started our journey in late 2018.
Currently, we are in the top five turnkey tokenization providers. We focus on each stage of the STR, from consultancy through legal processes to our technical ecosystem, where we have already built three blockchain-based products, fully Web3, for primary issuances of security tokens, the secondary market of security tokens in front of DEXes. So we built one of the first DEXes in the world for security tokens and recognized assets, and our own verification solution, Soulbound ID, to verify our community investors’ verification layer, where you one-time pass KYC and then automatically access our ecosystem through smart contracts. For the last five years, we have tokenized more than 60 projects, worth more than 300 million dollars in assets for our clients. We have more than 14 people inside the company and have analyzed more than 100,000 hours of research on different financial cases, pitfalls, regulations, and accumulated this knowledge to share with our community, clients, and partners. So we’ll be happy to discuss fragmentation, tokenization, and data validation because it perfectly aligns with what Starbucks does with our existing solutions. We are also currently building the next version of our ecosystem, Starbucks 4.
And we’re building it together with the expertise of Chainlink, IDS, Fractal ID, Fireblocks, Chainalysis, EURS (the biggest Euro stablecoin), and many others. So we are very open and happy to contribute to the industry.
Speaker 1: Ashish Sood
07:55 – 08:40
Thank you so much, Ross. I think it’s going to be very interesting to have you here with your experience. Your insights should be very interesting. I think, having seen 50+ protocols and $300 million in tokenized assets, I’m sure you might have covered almost all categories. So it would be really interesting to have this conversation. Moving forward to Dual Mint—do you guys want to take the stage? Give us a quick intro. Thank you so much for being here. Yes, cool.
I think we’ll just carry on. Do we have somebody from Carrie Finance?
Speaker 3: Abhishek (from Caddyfi)
08:42 – 09:49
Hey, hi. Hi. So I’m here, Abhishek here. Yeah, I’m good as well. Thank you so much. It’s a wonderful evening. Thanks for this opportunity to talk about one of my favorite segments of the blockchain, which is tokenization.
I come from an AI background, meaning data validation or data—how and why data is very much important, especially when we talk about blockchain. Before getting started, probably I’ll just give the audience a turn on what Caddy Finance is. Caddy Finance is basically revolutionizing RWA with the integration of DeFi. Basically, we take the yields from these real-world assets and put them into DeFi strategies, enabling investors to maximize their returns with the combination of the best of both worlds, I would say. So we have various ways to do it, various asset classes we consider. And definitely, I would be more than happy to jump in on how we do it further down the talk.
Speaker 1: Ashish Sood
09:51 – 10:37
Perfect, happy to have you here. I think it will be very interesting. Dual Mint, do you guys want the stage? Are you unmuting? Perfect.
I think we can start off with our questions. If these guys are in, we will have an introduction just in the middle. Okay, perfect. So let me just get started on the first question. So, there have been a lot of tokenizations that you guys have covered across this period, right? We’ve covered multiple categories and multiple ERCs. How do you see all of this coming together? What is the roadmap for the future?
Do you see multiple ERCs living together, or do you see other things happening? How are we going to take the ERC approach?
Speaker 3: Abhishek
10:41 – 12:20
Okay, I think I can take that as the first question for me. So yeah, typically considering right, blockchain in terms is only getting started. When we want to really replicate essentially what’s happening in the real world, we definitely need a lot more or various standards based on the business use case. One of the best cases, I would say, is how you guys have come up with ERC-6960, which essentially means that you have found a business case where this token utility comes out right. The same way I see various token standards present across the EVM or standards where there are specific business cases built specifically to these standards. And if you go and look at the ERC proposal, you might see quite a lot of various other proposals as well, where they point out certain cases of coming up with new token standards. In our case, one of the most popular token standards we’re including is ERC-3643. This is where, for us, when we’re dealing with private securities or security assets, this token standard actually comes up with a bundle of solutions that can enable us to monitor compliance and the identities of the user. So yeah, I definitely believe there will be a paradigm shift going forward, and there will be a future of having more ERC standards.
Speaker 1: Ashish Sood
12:23 – 12:45
Yeah, absolutely. I think there are—if there are 20 ERCs, I think there are a hundred ERPs right now. It’s just going crazy. Everybody has a great solution, and I think every ERC brings in some change or some behavior that cannot be done by one. So it will be interesting to see how this all merges. Yeah, yeah, right, Ross? Yes.
Speaker 2: Ross Shemalik
12:45 – 16:36
Exactly. I agree with you. I will comment on that. So look, let’s see on the main benchmark of the industry. And for me, the benchmark is BlackRock, which tokenized their fund using the Ethereum blockchain. And I think that it is a great proof that we see a big evolution and great traction utilizing the public blockchains instead of private ones. Because we know that initially, institutions and governments said they would like to use private blockchains. But in reality, we see that based on regulatory approvals and many use cases, most of them are coming from the EVM-compatible chains.
And I think that is the right strategy and it is the future because if you utilize the EVM-compatible blockchain or protocol in this case, all participants can contribute and co-list or utilize your assets on the smart contract that you tokenize. For example, in Starbucks, we also developed our own proprietary standard called STV2. It is a proprietary smart contract standard, EVM-compatible for tokenized assets, with all the data inputs that are important for that organization process. I mean the country, the whitelist, the region, the KYC validation, KYB validation, what is with your assets, the security. So there are a lot of data inputs, especially for tokenized assets, because it’s security. So it’s not utility tokens, it is not NFTs, it is not memecoins. It is a serious process with regulated compliance. That’s why we developed our own.
But in the product that we’re developing now—I will repeat that we have already built three fully Web3 blockchain products and
are currently building the new version of our ecosystem. And in Starbucks 4, we will utilize not just our standard STV2, but also other standards from other providers to bridge this gap. Because currently, you may see a lot of tokenization providers with several cases, right? And you will have the impression that tokenization is everywhere. But in reality, then you face a big issue with the co-listings and co-utilization of their assets because it is different companies, different providers, different standards, different chains, different logics, and this is the problem. That’s why I think the next evolution of tokenization and real-world assets is to provide the opportunity for these different standards to be able to co-list assets or to co-utilize the technology. This is the gap that I see now.
And of course, I think that in the future, we’ll see more traction on the EVM chains. Personally, I do not believe in private chains. It’s more for governments and institutions. But it is very heavy to develop, right to market and develop because you have a closed ecosystem. No one can contribute, no one understands what it is in your private code that you did. Right? And it’s not recognized by the community or general public. So I believe in EVM-compatible protocols, and we need to bridge the gap between different providers, different methods, different chains to be able to have different marketplaces where tokenization providers that produce these use cases can interact with each other.
Speaker 1: Ashish Sood
16:39 – 17:09
Thank you so much, Ross. I think from what I hear, at least from you, is that while we have a lot of ERCs as plugs, I think we might just need to work on a good socket, right? So maybe better integrations, cross-integrations. I think that’s a good way to look at it. Let’s deep dive into it in some time. But before we go any further, I think we have two great people here that have joined us. Sophia, do you want to take the stage, introduce yourself, and tell us a little about PVO1? Happy to have you here.
Speaker 4: Sophia Schluger
17:10 – 17:15
Yeah, great. Thank you so much, Polytrade, for setting this up. Can you guys hear me okay?
Speaker 1: Ashish Sood
17:17 – 17:18
Yes, we can. Thank you.
Speaker 4: Sophia Schluger
17:18 – 20:09
Great. Hi, nice to meet you guys. My name is Sophia Schluger. I’m the Chief Commercial Officer at PVO1. You can think of us as a debt capital markets business on-chain. We’re the first regulated marketplace for issuing, investing, and trading digitally native bonds on the blockchain. So that’s a very important differentiation and distinction from, I’d say, a lot of the tokenization platforms out there in the RWA space.
We focus on fixed income. And essentially, what we are able to issue—and we are fully regulated out of Bermuda as a tokenized digital asset business and broker-dealer—is ERC20 tokens that are digitally native bonds or securities on-chain. So we’ve done $30 million worth of issuance volumes of our t-bill product, which is essentially U.S. Treasury yields on-chain. And unlike some of the other platforms that are basically a pool of assets or managed funds or are tokenizing a bond ETF, what we offer our clients is an ERC20 token that’s secured on a one-for-one basis with the Treasury Bill off-chain, and that sits in a bankruptcy-remote SPV regulated out of Bermuda. So you get direct exposure to U.S. Treasury yields, staying on-chain, and that’s down to the actual individual Treasury Bill, the CUSIP number. So you are locking in fixed yields, you’ve got transparent cash flows, and we really view it as like a DeFi primitive from which you can do all sorts of other investment decisions. It’s fully transferable.
It’s for non-U.S. institutions, so not for retail. And we can issue any size on any day of the week, depending on investor interest. So it’s a really interesting product. Beyond that, we’re also going to be doing corporate bond issuance of crypto-native institutions, most likely market makers, that will obviously have a higher risk and higher yield profile. But for now, we’re super interested in helping people with their treasury to get yield on USDC. But also, our t-bills can be used as yielding collateral on certain venues, so you can borrow or trade against them. So I’m super happy to answer any questions you might have about our products. If you’re interested, happy to also connect later.
But yeah, we, I would say, are a differentiated platform in the space, and our product is also very differentiated because it’s down to the asset level and not a managed fund, where you’re abstracting away the decision-making power to a manager and also paying for that management as well. So our fee at 20 bps is lower than most other tokenized treasury or money market funds that charge, you know, 35, 50 bps, etc. So I’m just gonna stop there because I’ve been chatting for a bit. Lovely to meet all of you guys and look forward to connecting further.
Speaker 1: Ashish Sood
20:12 – 20:46
Perfect. Thank you, Sophia. I think we will surely reach out because we have a very good user base, and I think it will be very interesting to provide your product to them, something that they can truly understand and be transparent about. So, very interesting. Thank you so much for being here. I see Dual Mint is here. Are you guys back? Are you guys unmuting?
Speaker 5: Dual Mint Representative
20:49 – 20:50
Hey, can you hear me?
Speaker 1: Ashish Sood
20:52 – 20:56
Yes, I can hear you. Your voice is really low. Is it only for me?
Speaker 3: Abhishek
20:49 – 20:50
I think the voice is pretty low.
Speaker 1: Ashish Sood
20:52 – 20:56
Yeah, even now.
Speaker 5: Dual Mint Representative
20:57 – 21:01
Okay, give me a second. I’m going to reconnect.
Speaker 1: Ashish Sood
21:04 – 21:41
Perfect. While Dual Mint reconnects, I want to ask a question to PG. I’ll rephrase this question for you. So while there are a lot of ERCs and Polytrade has come across a few, how do you see the future of these ERCs? Are they going to come together? Is there going to be standardization? Everybody is building something beautiful, but to get it all together, there needs to be a vision. What’s your thought?
Speaker 6: PG (CEO at Polytrade)
21:42 – 23:49
I actually love the idea of people innovating because every ERC is solving some issue that RWAs have. We ourselves are an example, right? ERC-6960 was done purely because we wanted to address the constant change of state of RWAs. So, I guess it’s good that the whole Web3 space is building and it’s nice to see so many innovations happening. One thing which, again, you know, this is the core issue of mass adoption: how do I move an RWA from one chain to another? How do we teleport these assets? How does a lender sitting on one chain lend against an asset on another chain? Unless these ERCs are transferable or, you know, multi-chain, omni-chain, whatever word you want to use, they will still be limited to a certain audience on a certain chain. One of the thought processes we are working on internally, and probably will come out soon, is the idea of wrapping these assets. I’m not sure how successful we will be, but if an asset on chain 1 can be locked into a smart contract and a clone or twin is created in a wrapped version on another chain, that would solve a larger issue because a wrapped asset—a wrapped ETH, wrapped BTC, or wrapped any ERC-20—acts in the same fashion as we perceive these ERCs would behave. If that is a solution that can work, it will create a homogeneous environment for all chains to come together. All ERCs will become seamlessly omni-chain, and we can build BNPL and other embedded finance positions on top of this. These assets will be able to attract global liquidity because they are not restricted to just one chain and one set of audience. But again, this is something that is still in the building phase, and a lot of testing is required, but that’s one possible solution.
Speaker 1: Ashish Sood
23:53 – 24:14
Perfect. Thank you, PG. Hey, Dual Mint, are you guys back? I can get some waves. Perfect. Do I get rugged?
Speaker 6: PG
24:17 – 24:28
I think he’s still trying. We heard you. Nice. Okay, cool. But I guess it’s again, back to me. The hey was nice.
Speaker 1: Ashish Sood
24:28 – 25:04
Okay, perfect. So I think we just keep moving. I have—we have already been here for 30 minutes, and I have some more questions to go through. How do you see liquidity being played in the tokenization world? How does tokenization affect liquidity? Is fragmentation a piece of it? What benefits does partial ownership bring to the picture? I’ll open the stage
for anybody to take the question or Ross, you can go first.
Speaker 2: Ross Shemalik
25:06 – 29:09
Yeah, thank you. I think—thank you for the great question, by the way. The fact is that liquidity is an issue in tokenization and in security tokens in the private capital market. For our listeners and followers, I will explain that there are two ways how you can structure your secondary market for your liquidity purposes. It is centralized venues—like T0, INX, Overstock’s tZERO. So it’s centralized venues like Binance, but for security tokens that have licenses and the ability to trade tokenized assets. And you have decentralized exchanges, like in crypto, you have Uniswap, PancakeSwap.
But in tokenized securities or security tokens, you also have decentralized exchanges like GSX of Starbucks, like IX Swap from InvestX, right? So you have different decentralized exchanges optimized for trading tokenized securities. To enter the centralized venues like T0, you need to fulfill certain artifacts and points, and of course, you need money to be listed there. And not every private company is ready or able to open a secondary market through centralized venues, but to democratize the threshold, we, for example, created our own decentralized exchange, GSX Swap, to provide liquidity and secondary market options for our issuers. And it works in a way that if a project raises, for example, ten million dollars for real estate, the project can make the target for eleven million. And then, once they raise funds, one million will go to their liquidity pool for security tokens and USDT. In this case, all the participants in the primary offering of security tokens, or those who missed the chance to participate, but pass KYC in the issuer’s dashboard, will be allowed to trade the security tokens, to buy and sell.
And that’s how we manage the issue with the secondary market and liquidity for tokenized assets. We already have several projects listed on our own venue. For example, Lancer, a U.S.-based real estate project, already has its security token traded on our venue. It means they have opened their secondary market for their investors, for their real estate. And practically, all assets that are liquid cost more than illiquid ones, and they are already benefiting from the ongoing secondary market they’re running. But I think there is room for improvement and many different protocols and events that may happen in the future to improve the liquidity issue in the market, with market makers, liquidity providers, and protocols. The main issue, of course, is compliance, legal processes, and pricing itself. It’s a problem we are working to solve.
Through Starbucks 4, which we are building and improving, it will be easier. And I think we will be able to target not only private capital but also other asset classes for the secondary market, like collectibles, NFTs, etc. Thank you.
Speaker 1: Ashish Sood
29:11 – 29:22
Perfect, perfect. Thank you. I think you brought out a good point about the market maker and how liquidity flows in. Sophia, do you have your points here? I think you were unmuting.
Speaker 4: Sophia Schluger
29:23 – 31:58
Yeah, absolutely. For some reason, my network doesn’t want to stay connected. You guys were on something. You guys have got something going. So, where do I start now? Okay, as a bit of an introduction, my name is Sophia Schluger. I am the Brand Senior Banks Manager here at PVO1. We are focused on real-world assets tokenization, pretty much like Polytrade. We’re focused on luxury assets while linking it to emerging markets.
So we’re trying to make luxury items affordable to people in developing countries through tokenization, right? In terms of the protocol, we’re trying to develop a governance protocol that goes beyond just technical terms. So, I’m not seeing a lot of emphasis on incentive structures in the technical area here, but for us, it’s not just about blockchain. So, what we’ve done is we’ve built an ecosystem of partners who agree on certain details so that a smart contract is built around these details. The dual prevalence protocol works in a way where the physical item itself has all of its legalities and details documented, and that document is attached and brought on-chain. So there is a digital copy of every single legal document around any physical asset in our system. We’re trying to ensure that not only is the asset tokenized physically, but it’s also tokenized digitally as well, right?
We aim to fractionalize these assets to be very accessible, so that people in regions with lower disposable income can still leverage the profitability of these assets as a way to gain passive income. We’re working with communities in Africa, Southeast Asia, and Latin America. We also focus on sustainable projects, looking at ESG initiatives, and seeing how we could contribute positively to partners through blockchain. So yeah, we’re really excited about the progress we’ve made so far.
Speaker 1: Ashish Sood
32:01 – 32:15
Thank you for that, Sophia. Sorry, please go ahead.
Speaker 4: Sophia Schluger
32:16 – 32:25
Yeah, no worries.
Speaker 4: Sophia Schluger
32:25 – 33:54
So I think, you know, with the Treasury market, obviously, it’s one of the deepest and most liquid markets in the world, $27 trillion. So in our case…
Speaker 1: Ashish Sood
32:25 – 32:25
I’m not sure I got your…
Speaker 4: Sophia Schluger
32:25 – 33:54
Question. So I think the question was around liquidity in RWA products. Is that right? Yep, absolutely. So anyway, so I was just saying that, you know, the U.S. Treasury market is one of the deepest and most liquid markets in the world, $27 trillion. And essentially, you know, with our ERC20 token, we would be happy to buy it back from investors who, you know, perhaps don’t want to hold it to maturity. We work with a market maker who is interested in buying back these tokens. In the future, we’d love to see enough of our t-bills out there that market makers will be making markets in them on a daily basis. But in the event, for example, that an institutional client of ours purchases these t-bills in size, if we aren’t able to, let’s say, buy back the token in the full amount, what we could do is just basically unwind the transaction and sell those t-bills that are sitting in a bankruptcy-remote SPV into the open market.
And then, as I mentioned, off-ramp from fiat to USDC, and then pay back the institutional client who’s holding that token, burn the token while automatically returning their USDC for their investment. So that’s how we solve the liquidity side. And I think it’s a great structure because it gives investors comfort around the fact that there is liquidity in the product, even if there’s not necessarily a large and active secondary market for trading right now.
Speaker 1: Ashish Sood
33:58 – 34:12
Absolutely. I think transparency and liquid markets are essential for an industry to thrive. Getting in and out is the way traders come in, and it’s very essential. Abhishek, do you have a point on this one?
Speaker 3: Abhishek
34:12 – 35:43
Yeah, that’s very true. The very fact why we fractionalize is to provide liquidity for illiquid assets, right? So essentially, this goes towards the prevention of its value for retail investors to also have a diverse portfolio of their investment. In our case, especially, like, while tokenizing solar farms, especially, the entry ticket size is quite high. This stops a lot of retail investors who have more of an incentive to invest in these assets but can’t because of the high entry cost. But then, having fractional parts or fractional tokens enables these retail investors to jump in, invest, and have access to these assets. This helps balance their investment thesis along with their mental thesis of combating climate change, I would say. So yeah, definitely there will be a lot more growth in this sector, especially when these fractionals come on the blockchain, enabling global investors to sit anywhere in the world and still buy these assets. So this overall helps tokenization and fractionalization make illiquid assets more liquid.
Speaker 1: Ashish Sood
35:48 – 37:02
Yeah, absolutely. I think it’s been very fun and interesting hearing all views from everybody here, right? I think it’s been a 30-minute mark, and we’ve heard about all ERCs, what fragmentation is, and how liquidity works here. These are deep answers on a tense topic, and we need to explore everything we’re talking about. So it’s very interesting to hear everybody’s point of view. Having said that, I have an interesting question now to dive into.
That is data validation, right? While there are multiple formats for tokenization currently, we also need to validate the data that we tokenize. And that is a very crucial part of tokenization. There are multiple great partners like Chainlink that help you do proof of reserve. There are also multiple oracle providers that actually help you validate that data. But still, the source of verification is still with the protocol. Do you see this source of verification being decentralized? And how do you see the data that we’re validating on-chain going to change for the future?
Maybe this time, we’ll take it the other way around. Abhishek, do you want to go first? If that’s okay, you can take over.
Speaker 3: Abhishek
37:
02 – 38:56
Yeah, I mean, like I said earlier, my background is in AI. So I’m a pro-data guy, where I need valid datasets to train models, right? But in terms of blockchain, there are two worlds altogether. One is the real world that is happening on its own, but then we have a parallel world, which is blockchain. And these two are not interconnected. So to be honest, I always give this example that if I go on-chain and then mint an asset and say, in fact, Taj Mahal belongs to me, I can say that, but that doesn’t mean that I actually own it, right? So this is where the true authenticity of the data comes in.
How do we verify that this user actually owns this asset in the real world while also verifying its valuation, right? I can also say that this asset is only $100, but it’s not even $100. So this is where the oracles come into the picture, along with something called “attester infra,” where these guys are a set of people who have their own methods to determine how these assets can be valued. They interact with oracles to make sure they bridge the real-world value of these assets to the blockchain. Right now, yeah, it is kind of centralized, but Chainlink is one of the companies that is already trying to work in a decentralized fashion, where you can set up multiple attester infra, meaning the same asset is validated by multiple sets of people, giving you a better judgment of its value over a period of time. So this is where I stand on this.
Speaker 2: Ross Shemalik
38:59 – 41:56
Yeah, thank you a lot. I will comment on that because at Starbucks, we have already tokenized more than 60 cases worth 300 million dollars. And we have in our Soulbound ID solution more than 60,000 users, and more than 25,000 of them have already passed KYC. So I fully understand the issues, and we are also working with Chainlink. So look, guys, the problem is the following: it is the price feed. Because Chainlink works perfectly for tokenized treasuries that have a certain price in Web2, right? Treasuries or some public securities like Microsoft, Apple, and Chainlink can easily bridge this price feed and give it to you in the same descriptor.
Because you have CoinMarketCap, CoinGecko, or any other marketplaces where tokens can be listed, Chainlink can validate it and give you the price. But what do we do with private equity that Starbucks tokenizes? Who validates the price? Who validates the market cap? Who gives the price feed? Because if you want to list your security token on DEX with a certain price, who will give this price? And Chainlink does not manage this issue. That’s why we’re talking about how to solve it, and it is a big issue in the market. We at Starbucks, due to this problem, created our own Chainlink, our own oracle price feed, to be able to bridge it on our own Web3 products—the primary and the secondary—to have the oracle validate the project, validate the price of the security token itself, to provide the liquidity and price for the assets. And of course, a crucial part is the due diligence of the project itself.
When you tokenize it, where is the real estate located? Why does it have a certain valuation? What are the licenses? What are the assets of the project that wants to raise funds? And of course, every project, every provider needs to do proper due diligence and proper KYB processes for the assets they are tokenizing. Currently, in Starbucks, most of our clients are from real estate. It is a significant portion of our clients. The other 50% are from the financial industry, the energy sector, the mines, gold, and other assets, but most of them are from real estate. That’s why the valuation of the project itself and the price feed are very crucial.
That’s why we are currently collaborating and talking with Chainlink to find a certain solution in security tokens to solve this issue. But this is where we are now.
Speaker 1: Ashish Sood
42:01 – 42:03
Thank you, Ross.
Speaker 3: Abhishek
42:04 – 42:04
Yeah, I mean…
Speaker 1: Ashish Sood
42:04 – 42:08
It’s interesting to see what price feed you guys are building. Sorry.
Speaker 3: Abhishek
42:08 – 43:36
No, I mean, that’s exactly the point. If we have these price feeds coming from a single price source, that’s the whole point of having oracles, right? Oracles are the true source of data. For Chainlink, even, at Caddy, we’re also discussing integrating with their SPV values and a lot of other structures, right? When Chainlink started, they had an individual source of truth. But then that’s where the whole problem lies. Bridging an individual source of truth from the Web2 world to Web3 is going to be very difficult or can be corrupted because if you can lucratively corrupt one of the data feeds from one source, then false data is already put on the blockchain, which can never be taken back.
And now look at what they have done with Chainlink data feeds, where you see a lot of other service providers who provide the true source of data, and they have their own ways to determine who these service providers are and if they are right or wrong. So in the same way, I think even for real-world assets, we need to have these multi-assessor services, like I said, to validate this type of information. Somewhere, I feel this is the best way going forward when we are bridging assets.
Speaker 1: Ashish Sood
43:40 – 44:04
Actually, it’s very interesting to see how we’re decentralizing, right? A single source of data can, like you said, always be corrupted. And I think that’s where the question came from. How do we ensure that this data side is true and everybody is working from one? Passing the banner to Sophia, what is your thought on this? How do we decentralize data validation?
Speaker 4: Sophia Schluger
44:06 – 44:09
Can you repeat the question? I want to make sure I understand what I’m answering.
Speaker 1: Ashish Sood
44:11 – 44:41
Sure. So we are talking about how data validation is happening on-chain. A good point raised by Abhishek was that a single source of data can always be corrupted. Chainlink is taking an approach to decentralize this by allowing multiple validators to come in and prove a data point. How do you see decentralization in data validation happening? And how do you guys push data on-chain? Is that a single validated source?
Speaker 4: Sophia Schluger
44:41 – 45:43
Yeah, so I’m not an expert on the topic per se, but what I can tell you about our product is that everything is via smart contracts. So, you know, our product, our t-bills, are settled, redeemed, paid for, and transferred all on-chain. And so, basically, my answer to that question is that the blockchain is the single and only source of truth. So everything that you do with our product is visible on-chain, and that’s where you get transparency and assurance around the legitimacy of the transactions, etc. So I don’t know if I have much to add to the topic, but for us, when we structured the product, we were very clear about how we wanted to go about it. It was important to us that it all be done via the smart contract so that, you know, we do have custody reports for the actual Treasury bills that are purchased and kept off-chain. But I think you’re really asking about on-chain data.
So the source of truth is the blockchain, and that aligns with the ethos of our company.
Speaker 1: Ashish Sood
45:47 – 45:52
I think tokenized data is the purest form. Yeah, Abhishek, please.
Speaker 3: Abhishek
45:52 – 46:52
Just a quick thought. Sure, like if we want to decentralize this data, how do we get the right attestation or value of these assets, right? Maybe we can do some sort of incentivizing for these people and penalizing false attesters so that it’s like one of the nodes, right? If a node attests to a block saying that this is true, but in fact it is wrong, why don’t we just kick them out, slash their staking, per se? Probably the best way going forward is if we can look at separate asset classes, and based on the asset class, these testers can take a certain amount and say, “Okay, we are ready to stake $100,000, but we can only validate this source to an extent.”
Speaker 1: Ashish Sood
46:55 – 47:05
Absolutely. I think I was just passing it on to PG. PG, just your thoughts on the same topic and how do you see Polytrade decentralizing this piece?
Speaker 6: PG
47:05 – 49:28
I think what Abhishek said is spot on, that if there are multiple attesters, and that’s how the whole validation business works on Web3. You have multiple validators, and if somebody is doing a wrong validation, they get slashed and penalized. But for us, I think as an issuer issuing an asset and providing certain sources or
truths or data points, there will be some data points that can be directly authenticated by the relevant party. For example, if it’s a custodian, say for instance, a watch is being custodied, and the custodian is Brinks, then I would expect Brinks to directly come on-chain and verify that. That should be the shortest journey because it’s the custodian himself verifying it. But yes, of course, the second option is that there are individual parties who can go and validate it if Brinks is not on-chain. But as we expand more into Web3, all of these third parties who are custodians, auditors, valuers, and any such parties providing the source of that data should come on-chain and validate it.
So I think from our side, we are trying that approach, where every product that is tokenized, the issuer should provide these data points. And once these data points are visible to people, we should have an option of getting them verified by the actual source. I think that would probably bring a lot of authenticity and trust to the whole ecosystem, ideally, because that is the reason most people are still fearful of getting into Web3. And I think we have discussed this multiple times that today ourselves, we are scared of buying Web3 products, right? I mean, today, if you ask me, I run a protocol, Polytrade, but how many RWAs have I bought personally, right? Probably very close to none because I wonder who is issuing this? How do I trust that it’s actually a t-bill? Whether it’s a t-bill, a corporate debt, or an SPV in the Cayman Islands, who is buying these t-bills on their balance sheet?
What if that SPV goes bankrupt tomorrow? How am I safeguarded? Sophia, I’m happy to listen to your answer on that.
Speaker 4: Sophia Schluger
49:29 – 51:28
I love those questions. Sorry, there’s a bit of background noise here. I’m going to try to move somewhere quieter. But basically, you know, that’s the problem that we’ve solved in that the SPV that issues these bonds is bankruptcy-remote. As I mentioned, we are a fully regulated business. So our license is visible—you can visualize it on the Bermuda Monetary Authority website. We give all of our institutional clients a 200-page bond offering memorandum and a term sheet with every issuance, just as you would expect to receive if you were to subscribe to a bond in the traditional markets. And as I mentioned earlier, you have a custody report attesting to the fact that those t-bills in that correct size were purchased and put into that bankruptcy-remote SPV.
So all the assurances are there, whether it’s from the token side on Etherscan or through the legal bond documentation that we furnish, or through the custody reports. We’ve solved a lot of those concerns that people have about the legitimacy of where this yield is coming from. If you don’t know where the yield is coming from, you are the yield, as we know. But I like the question because I think our industry needs to do better in terms of growing up and being more familiar and comfortable with regulated products on-chain. There are few and far between, as you say. Hopefully, we’ll get further on that. But the point is we’ve structured our company, our business, and our products in such a way as to give people comfort about the legitimacy of our business, operations, and the assets that they are holding. I love that question. I wish more people would ask it because I think we’ve prepared ourselves well in terms of furnishing all the assurances that one would expect when they are buying a financial product on blockchain.
Speaker 6: PG
51:29 – 51:58
I love that, Sophia. And I think this is the right way of paving the path for even private credit to come in, right? Because t-bills are still very secure, but when it comes to private credit, there will be bonds issued by private companies. And you’re not doing something out of the box. I mean, you’re following the rules that worked in Web2 and people have trusted them for centuries, right? So why reinvent the wheel? Just use the same principles in Web3 and bring those data points near.
Speaker 4: Sophia Schluger
51:59 – 52:50
Yeah, no worries. I think just on the private credit point, it’s something we will solve as we go about it and do our first private corporate bonds. The challenge there is always on the origination side because when you’re getting into private credit, it’s all about how well you’re doing due diligence on the issuer and any credit ratings associated with it. Moody’s, I think, is now getting into rating some on-chain credit, but I don’t think they will be doing it on mass like they do in the traditional space. So we’re looking at different providers. Credora is one that I think comes up often. They replicate the framework that Moody’s and some of these other rating agencies use. Onward and forward, we’re excited to just keep trailblazing in the credit space on-chain.
Speaker 2: Ross Shemalik
52:51 – 56:20
Yeah, thank you a lot, Sophia, for the great answer. And thank you, PG, for the great question because I can answer it from the private capital perspective of a private company, and it is a really great example and great questions that reflect the thoughts of common investors before investing in the private capital of a tokenized private business like real estate, manufacturing, solar systems, mines, gold—doesn’t matter. Remember that tokenization is not a new bicycle; tokenization is just a new tool for how you interact with the financial system, right? And it is, for example, still securities but not in the form of papers but in the form of tokens. And before investing in any private company, it is the same process as dealing with papers, right? What do you do before investing in a startup or any private physical company, face to face?
You do certain checks, certain due diligence, and certain processes for the founders. What is the documentation? Who are the backers? What assets do they have? What licenses do they have? And of course, the more licenses a project holds, the higher the success rate will be in integration through the blockchain. Of course, as an investor, before you invest, you need to do proper due diligence, as in the real world. And you will have several confirmations, for example, from the technical provider who issued these securities, right? It is also on their side to do due diligence. Then, some validations from the market players, professional market players, and valuation companies that provide valuations or something like that. But in all of the cases, as an investor, you need to think about whom you are giving money to and what assets you are investing in. But what I’m trying to say is that it is not a new process.
With papers, you will do the same because you can invest in a private company and they will go bankrupt, right? The same with tokenized assets. Only the tool has changed, how you interact. You can sit on your sofa in Singapore and invest in a U.S. company in 3 seconds if you already made the decision to invest. And remember that tokenization is not just about fundraising or tokenization for private companies. It is also for the management of private companies themselves. I mean the dividend distributions in one click, cap table management, storing your shareholder list completely online, and reporting to the competent authorities, IRS, etc. It is about conducting the voting for your private company. For example, we have a case with one of our clients that has 1 million investors.
And of course, it is very challenging to deal with them. How will you deal with it with papers? Can you call 1 million investors at one time? Of course not. But through the blockchain, you solve these issues. So do your proper research before investing. And once again, the more regulated the project, the higher the success rate and the safer it will be for the investor.
Speaker 4: Sophia Schluger
56:23 – 56:26
I love that. Sorry, did I hear you say 1 million investors?
Speaker 1: Ashish Sood
56:29 – 56:49
Go ahead. No, please go ahead, Sophia.
Speaker 4: Sophia Schluger
56:50 – 57:44
Yeah, sorry about that. No, I was just saying 1 million investors. Wow, that’s like a dream for me. How do they go about finding them? But no, I think it’s interesting you mentioned about the importance of having regulated products, and that’s sort of the professionalization of our industry. We need to give more assurances to the market. But interestingly, I’ve actually spoken to some sort of DeFi degens who, when you use the word “regulation” and you say “security,” they actually get concerned. They have a sense that maybe the regulators are going to be registering them. Surprisingly, I have gotten pushback that some participants in our industry don’t fully understand the benefits from an investor perspective of buying a regulated product.
When they hear “regulation” or “regulator,” some of them actually panic. But hopefully, that will be a thing of the past.
Speaker 2: Ross Shemalik
57:45 – 58:38
Yes, Sophia, it is a great point. And we are always between regulation and decentralization. On one side, you have like Manco and investors who are scared about any KYC, KYB procedures. But then when the case with FTX happens, they inquire why they were not protected. So I think that if we deal with securities, and if we talk about securities,
everyone needs to be KYC verified, maybe even twice, right? To provide safety for the issuer, for the investors, and for the stability of the whole ecosystem. And one day, all of these investors will understand what they are missing. Because when they lose their funds through several FTX-like incidents, maybe next time they will think about passing KYC and being protected by the law.
Speaker 1: Ashish Sood
58:42 – 58:60
Perfect. Thank you so much, Ross, Sophia. Overall, it was a great space. Thank you so much, guys. I will pass it on to everyone for their last remarks, just maybe where people can find you. And that’s it. Thank you so much.
PG, do you want to take over?
Speaker 6: PG
59:00 – 01:00:08
Yeah, sure. I love this space. Sophia, precisely, we are keeping these spaces because we want to highlight these key questions that normal people are not able to understand to date. And most of the protocols are very opaque about it. They’re not really coming out with these solutions or the transparency about it. So, you know, this is the primary reason we are doing this, and we wish to get answers and protocols just like you. Again, thank you, everyone, for being here. To find us, you need to just go to Polytrade. You’ll find us on our marketplace.
Go hunt for these assets, see what works for you, participate, and actually get the experience of having tokenized assets in your hand. And yes, we are bringing this data transparency, liquidity solutions, and the whole omni-chain experience to users. As everybody knows, we now have 50+ partners onboarded across 11 chains. And every day, we keep adding more and more partners to the ecosystem. Thank you so much. Quick words from all of you. Thank you so much again from our side.
Speaker 3: Abhishek
01:00:10 – 01:00:42
Yeah, thank you, PG. Thank you. It’s been amazing, and it’s an honor to talk about what we really love doing at Caddy. So people who are interested, you can just follow us. We’re getting started. We are going to do yield maximization using DeFi strategies. If somebody is interested in it, definitely look us up. Our whitepaper is going to be out tomorrow.
So yeah, more questions, happy to reach out. If anyone reaches out, I’m happy to answer as well. Thank you so much.
Speaker 2: Ross Shemalik
01:00:44 – 01:01:17
Yeah, thank you a lot. Thank you for hosting this great conversation. Please follow my Twitter account. Currently, I’m in the top 10 Twitter influencers in tokenization over the last month. And follow Starbucks.io. We are very open for any conversation, for any collaboration, because I think that in tokenization, it is not about competition, it is about collaboration and contributing together to the industry. So thank you, guys. Thank you, ladies, and have a great weekend ahead.
Speaker 4: Sophia Schluger
01:01:19 – 01:01:23
Thank you.
Speaker 3: Abhishek
01:01:24 – 01:01:29
Thank you, guys. Bye-bye. Have a good weekend. Bye-bye.