Speaker 1: Hey, folks, we are recording at Chainling smart cohon event
Speaker 1: and joining me is Dennis O'Connell, who is the president
Speaker 1: of EERC three six four three.
Speaker 2: Dennis, great to have you.
Speaker 3: Thank you for having me. Appreciate it.
Speaker 1: Yeah, Dennis, I'm very curious to learn about what you're
Speaker 1: doing as it relates to building ethereum and different types
Speaker 1: of ways people can tokenize and so forth. But tell
Speaker 1: us a bit about yourself. You know where you're from.
Speaker 1: How'd you get into crypto?
Speaker 4: Oh?
Speaker 3: Yeah, I love, I love my crypto story.
Speaker 4: So my background, I'm from original Long Island, grew up
Speaker 4: outside of New York City for most of my life.
Speaker 4: My background is actually engineering, mechanical and aerospace engineering. So
Speaker 4: I worked FANASA for a couple of years, and then
Speaker 4: I did almost two decades sprint in capital markets on
Speaker 4: derivatives trading and even collateral, so working on a few
Speaker 4: major banks along the way. And then I was red
Speaker 4: pilled by a very famous bitcoin kol Andreaspolis in twenty thirteen.
Speaker 4: He came to Chicago and uh, it was me and
Speaker 4: a bunch of guys from all the marketmakers or whatever
Speaker 4: you know, Cold Chicago nine and a nice bars ten
Speaker 4: thirty at night, and he came in and just absolutely
Speaker 4: laid in and gave us the gospel of bitcoin and
Speaker 4: we never looked back. And then I went full time
Speaker 4: into Defire in twenty twenty and.
Speaker 3: It's been it's been venture ever since.
Speaker 2: Man, I love Andreas.
Speaker 1: I learned a lot about bitcoin and blockchain tech in
Speaker 1: early days on Andreas as well.
Speaker 2: He's like, it's like a write of passage to listen
Speaker 2: to him.
Speaker 4: Right, Yeah, yeah, it was, And we thought it was
Speaker 4: a hobby for a while. And so like I consider
Speaker 4: myself part of that twenty seventeen generation of crypto, like
Speaker 4: Ethereum was my like first real blockchain or it's just
Speaker 4: really getting into it, sure, But before that I was
Speaker 4: messing around with A six and all the other stuff
Speaker 4: we could actually mind yourself.
Speaker 3: But I never thought it would be a full time thing.
Speaker 4: And now it is my full time and it's it's fantastic.
Speaker 2: So tell us what is your C three six four three?
Speaker 4: ERC three six four three was called a permission token standard.
Speaker 4: So everyone knows er C twenty or a C seven
Speaker 4: twenty one, right, So where does these numbers come from?
Speaker 4: So easy to say, well, it was the three thousand,
Speaker 4: six hundred and forty third proposal for an Ethereum Improvement
Speaker 4: EIP right and your C twenty and seven twenty one
Speaker 4: we know so well because of how well adopted they are.
Speaker 3: Your C seven twenty is the fungible token standard.
Speaker 4: You're seven twenty one is a non fungible token standard.
Speaker 4: You have eleven fifty five. You have implementations like fourteen hundred,
Speaker 4: a few flavors, right, you have the vault standard like
Speaker 4: four six two six. So there's actually a lot of
Speaker 4: open standards in Ethereum. Ethereum actually prides itself as being
Speaker 4: the leader in terms of community adopted standards. Right, So
Speaker 4: ear C three six four three is a is a
Speaker 4: final standard. It's in the canon of tokens just so
Speaker 4: you can think of as EERC seven twenty one or
Speaker 4: is RC twenty And it's what we call permission token,
Speaker 4: so it's not meant to compete. It does its own thing,
Speaker 4: which is around on chain permission control identity.
Speaker 3: When we'll get into all that, So.
Speaker 1: Is this conducive to like institutions that want to tokenize
Speaker 1: and put different types of assets on Ethereum.
Speaker 4: So right now there's two different ways people will tokenize. Generally,
Speaker 4: they generally maintaine ARC twenty that is either a claim
Speaker 4: or IOU or something like that where it is no
Speaker 4: permission infrastructure. And that's like your token is stocks, so
Speaker 4: you see the lot popularity you're of and that's usually.
Speaker 3: For fungibility kind of reasons.
Speaker 1: Right.
Speaker 4: And then you have what we call permission tokens, and
Speaker 4: these are your fourteen hundred and three six four three tokens,
Speaker 4: And that's where tokens where you actually have the actual
Speaker 4: ownership value on chain. And those are needed because the
Speaker 4: regulators say, hey, if you want to go on chain,
Speaker 4: we need these extra things. We need identity, we need control,
Speaker 4: we need registry, and we need compliance. So the future
Speaker 4: of our WA's is going to be permission because fundamentally
Speaker 4: the regulators prefer some form of permission. But it has
Speaker 4: its challenges as we'll get into.
Speaker 1: So you're ERC three six four three. Is it a
Speaker 1: company and a group of developers? How are you guys
Speaker 1: working on this and how do you benefit.
Speaker 2: In the ecosystem so to speak?
Speaker 3: Yeah, great question.
Speaker 4: So the ARC three six four to three is the
Speaker 4: RWA permission token standard for ethereum. Right, and then we
Speaker 4: have the nonprofit association that myself and Luke Flampton of
Speaker 4: tokeny apex co founded, and Luke and I created the
Speaker 4: association to help people organize around the standard to understand
Speaker 4: what it means to be a permission token.
Speaker 3: And it's been incredible.
Speaker 4: We've been implemented on over thirty five billion in assets
Speaker 4: on and off chain for public and private networks. We
Speaker 4: have over twenty three jurisdictions around the world that have
Speaker 4: approved the standard, including recently with Project Crypto with the
Speaker 4: SEC's Innovation Exemption, and we just got a permission in
Speaker 4: Germany as.
Speaker 3: Well with the EPG.
Speaker 4: And we have over one hundred and forty institutional members
Speaker 4: as part of the standard, and we've been working with
Speaker 4: big institutions here in the United States, including with DCCC.
Speaker 3: So it's been incredible.
Speaker 2: That's great. I mean, that's a lot of institutions that
Speaker 2: you're working with.
Speaker 1: Yeah, and you mentioned you got the SEC approval on these, right,
Speaker 1: You got the rubber stamp of approval in that front,
Speaker 1: which is critical. So it's it's now a matter of
Speaker 1: like educating institutions, teaching them how to use this standard
Speaker 1: to build what they want to.
Speaker 3: That's that's exactly right, and we don't.
Speaker 4: We don't believe we're for open standards, so we don't
Speaker 4: push everyone has to use three six four three, but
Speaker 4: we do push for permission unchain and the SEC Crypto
Speaker 4: Task Force has been humongously positive for us. So we
Speaker 4: were mentioned in innovation Exemption part of Chairman Actin's speech.
Speaker 3: We went to the task Force.
Speaker 4: And so if you're in the US and your issuer
Speaker 4: and you want to do a regulation exemption, go to
Speaker 4: the SEC, say using three six four three and go
Speaker 4: from there.
Speaker 2: That's great.
Speaker 1: And then do you get the support of the Theorem
Speaker 1: Foundation And you know, folks like that.
Speaker 4: I have to give extreme credit to the Theorem Foundation.
Speaker 4: We have built r C three six four three for
Speaker 4: three years and this year I have to applaud the
Speaker 4: Ethereum Foundation in a lot of ways. First of all,
Speaker 4: I'm always gratified that I got to even work with
Speaker 4: them or talk to them.
Speaker 3: I mean, they are truly impressive group of people.
Speaker 4: They are also a very diverse and massive group of
Speaker 4: people with a lot of great ideas. And you know,
Speaker 4: I have to give a lot of credit to to Tomas,
Speaker 4: who's really set the new standard for the company for
Speaker 4: a lot of people on the Protocol team, Privacy team
Speaker 4: and others who have really shown the capability of ethereum
Speaker 4: and theory Foundation. I think it's a new energy for
Speaker 4: the Foundation and we at the ARC three six four
Speaker 4: three have been embraced now the Foundation and we agree
Speaker 4: should not pick winners. They should not say only three
Speaker 4: six four to three. They should say a variety. But
Speaker 4: they've embraced the idea of permission tokens and the idea
Speaker 4: of bringing and engaging with institutions.
Speaker 1: So can this standard be used on the roll ups?
Speaker 1: The L two's are just the ethereum layer.
Speaker 4: Well, absolutely, we're We're all on every L two that's EVM.
Speaker 3: We are on ethereum maynet.
Speaker 4: So any EVM or EVM compatible where where they're.
Speaker 2: Oh, that's awesome.
Speaker 1: And what are your thoughts on how etherorem is getting
Speaker 1: just like mass adoption from these institutions, you know, like
Speaker 1: black Rock the first place they launched their biddle when
Speaker 1: you took an as money market fund was on etherorem. Yeah,
Speaker 1: so you feel like Etherorem is like let's say the Blayer,
Speaker 1: like the Internet where people can just co build on
Speaker 1: it is to me, is the only answer.
Speaker 4: Right now, Ethereum is the only one that's been battle
Speaker 4: tested at scale. It has the depth and diversity of
Speaker 4: technical excellence, it has the resiliency. When we went to
Speaker 4: the SEC Crypto Task Force, we were joined by the
Speaker 4: Etherom Enterprise Alliance and Etherialized, and only Ethereum can really
Speaker 4: stand up to uh, the scrutiny by the regulators writ large, right,
Speaker 4: and then there's definitely others, But I think Ethereum still
Speaker 4: has some intrinsic values and a growth trajectory that's still
Speaker 4: really exciting and being seeing on the inside of what
Speaker 4: that looks like. It was always ethereums foundation to lead
Speaker 4: and they're not doing that, and that's what's really exciting.
Speaker 2: For sure.
Speaker 1: Now we've seen a lot of Layer twos get launched.
Speaker 1: But what's interesting and what really piqued my interest was Sony.
Speaker 1: They build a layer to an etherrem called Sonium. And
Speaker 1: it's not just your run of the mill. Okay, here's
Speaker 1: a layer two, here's another layer to but a corporate
Speaker 1: building it. Yeah you see more corporates Deutsche Bank two? Yeah,
Speaker 1: do you see more corporates building like their own layer twos?
Speaker 1: And what I mean, I think it's a great question, right.
Speaker 4: I think it will depend on what they hope to
Speaker 4: accomplish on that layer two. Right, So you could generally
Speaker 4: classify layer twos into performance privacy application. You know, some
Speaker 4: people make the argument that what a blockchain sell, they
Speaker 4: sell block space. Some points, some apps become so large
Speaker 4: that they over consume all the block space, and so
Speaker 4: maybe they're better off on an app chain or whatever.
Speaker 4: I think there's a performance benefit, maybe there is some
Speaker 4: sort of technology that they're inventing for the corporate side.
Speaker 4: It's it's interesting because we're shifting away from private permission blockchains.
Speaker 3: Which I think myself in the community really never believed in.
Speaker 4: I thought they were great pocs, but they would always
Speaker 4: die in a tropic death because you never would have
Speaker 4: the liquidity as an open public system. So then we
Speaker 4: kind of moved into hybrid and so L two's are
Speaker 4: sort of like now that new kind of flavor.
Speaker 3: But it's really more an indication.
Speaker 4: Institutions are more and more embracing open public blockchains, which
Speaker 4: is a good thing.
Speaker 1: Yeah, we've seen over the years kind of the capitulation,
Speaker 1: if you want to call it that, from folks who
Speaker 1: tried to build a private permission chain, but then it
Speaker 1: creates the same wall garden problem that existed in TRADFI.
Speaker 4: Yeah, well it's a new I call it newter blockchain,
Speaker 4: so that they want blockchain without the actual parts.
Speaker 3: And yeah, I think I got this from Andreas.
Speaker 4: But one thing Andre's installed in to be is do
Speaker 4: you see blockchain as another technology like a database or
Speaker 4: cloud or do you see blockchain as a society shift
Speaker 4: in finance? And the way I see it as a
Speaker 4: sidal shift in finance. So to to take the technology
Speaker 4: and new itter it down, then you can get people say, well,
Speaker 4: this is just attributed database, wh's really the value? Really
Speaker 4: accomplished this because you have now over centralization, you don't
Speaker 4: have the transparency, and you kind of have this contrivance.
Speaker 4: And so that was one of the reasons why I
Speaker 4: decided to leave my career in TRADFY, because I fundamentally
Speaker 4: believe that permission blockchains really missed the point of these
Speaker 4: open systems.
Speaker 1: So, you know, giving your experience in TRADFI, and given
Speaker 1: you know, your introduction to bitcoin into early days with Andreas,
Speaker 1: what is it like looking back and where we're at
Speaker 1: now with I mean the major banks, the major Wall
Speaker 1: Street firms all now looking to build tokenized stable coins, ETF's, custody, trading,
Speaker 1: you name it.
Speaker 2: They're trying to do that.
Speaker 3: I mean, to me, it's ironic and painful.
Speaker 4: I was so early into this, you know, going from hey,
Speaker 4: I think this is cool play with the asex to
Speaker 4: then getting the courage in like around twenty seventeen, largely
Speaker 4: with our three and when they did the one hundred
Speaker 4: and seven million dollar raised with all the banks, so
Speaker 4: now where it was no longer voting to speak about
Speaker 4: blockchain inside, you know, my day job. And I think
Speaker 4: one of the things that people realize is how much
Speaker 4: being in the industry was very painful because a lot
Speaker 4: of people thought it.
Speaker 3: Was a fraud there, it was a scam.
Speaker 4: They didn't really believe in the tenants, and so having
Speaker 4: to have those tough conversations with people who really were
Speaker 4: almost antagonistic.
Speaker 3: And that's why I say about bitcoin.
Speaker 4: Bitcoin was meant to be the most antagonistic thing to
Speaker 4: the Wall Street system is fully transparent, fully settled. It
Speaker 4: was totally disintermediated, and that that challenged a lot of people.
Speaker 4: And now to see all these institutions to come around,
Speaker 4: it's still unbelievable.
Speaker 3: But there's no reason to sit back.
Speaker 4: And I think the danger has been a complacency that
Speaker 4: if we don't continue pushing and working and innovating, that
Speaker 4: blockchain will just be here for the future.
Speaker 3: And I don't think we're there yet.
Speaker 4: I know it seems big, but you know, we need
Speaker 4: to continue to innovate and really get to a level that.
Speaker 3: We are not even at yet, like we have to
Speaker 3: go to. I'll put to you this way.
Speaker 4: There's probably a dozen tokenizers on Ethereum, maybe more. You know,
Speaker 4: if everyone those tokenizers tokenize a trillion dollars, they would
Speaker 4: tokenize twelve trillion dollars, right, which would be fantastic number.
Speaker 4: DTCC alone does eighty seven trillion, and they do several
Speaker 4: quad drillion in transaction volumes. So we're like barely the
Speaker 4: size of Navidia and Apple combined. Right, So we are. No,
Speaker 4: we're not at the gates yet. We're not at altitude
Speaker 4: we were, you know, not so low where it's so disruptive.
Speaker 3: We're getting more matures in industry.
Speaker 4: Part of that maturity is the standards, but it's also
Speaker 4: the quality of the projects.
Speaker 1: Do you believe that that growth that you're talking about
Speaker 1: and that search. Maybe the hockey stick effect, right, will
Speaker 1: happen when the market Structure bill passes?
Speaker 3: No, I don't. I think it will.
Speaker 4: The market structure build to me is reflective, like it's
Speaker 4: already capturing what's been there. Sure, what will hockey stick
Speaker 4: is when serious institutions start bringing serious assets. And what's
Speaker 4: hurt this industry has been a series of you know,
Speaker 4: setbacks with bad actors that have really materially hurt the
Speaker 4: credibility of this.
Speaker 3: And so when you want to.
Speaker 4: Get like real people in real places and they see
Speaker 4: some of the antics as happened. You know, I'm being
Speaker 4: nice and not gonna name names, but you know, it's
Speaker 4: a huge setback for the industry because like, okay, not yet.
Speaker 4: And so finally we have an administration and recultory infrastructure
Speaker 4: in the US.
Speaker 3: It's more reflective of the rest of the world that has.
Speaker 4: A bit more forgiving, bit more patient, but overall needs
Speaker 4: to mature a lot more.
Speaker 2: Absolutely so to al us.
Speaker 1: What's on your roadmap as far as development, what can
Speaker 1: we expect in twenty twenty six and things like that.
Speaker 4: Well, my company PSG, we are launching a major platform.
Speaker 4: We're calling it the world's first on chain investment bank.
Speaker 4: So we'll be giving out more information in the weeks
Speaker 4: to come. But we believe fundamentally that permission tokens you're
Speaker 4: C three six for three.
Speaker 3: The biggest challenge is that it is.
Speaker 4: Not accessible to DeFi, and so we don't believe in
Speaker 4: permission DeFi. I call it oxymoron right right, So permission
Speaker 4: has its place when you want to share registry and control.
Speaker 3: However, getting into.
Speaker 4: DeFi, and we're working some really great partners on this
Speaker 4: that will announce.
Speaker 3: But my main objective for the year is to launch.
Speaker 4: What we call permission vaults, the idea that you could
Speaker 4: take thirty six forty three permission tokens, encumber them and
Speaker 4: emit permissionless versions stable coins or twins, and get them
Speaker 4: into into DeFi. And so we'll be announcing that with
Speaker 4: some really great partners in the weeks to come. There's
Speaker 4: also lots of work to do on the regulatory front, yeah,
Speaker 4: as well, a lot of work on the open and
Speaker 4: open stands front, and of course with Ethereum Foundation coming
Speaker 4: active and all the amazing people and teams, there's.
Speaker 3: A lot of work there as well.
Speaker 1: Yeah, we got lots of work to do as an
Speaker 1: industry to get to you know, what you were talking
Speaker 1: about before, and to get trillions of dollars of assets
Speaker 1: on chain, you know with regardless of DeFi. You know,
Speaker 1: that's still been a challenge. I know the regulators are
Speaker 1: having a hard time understanding DeFi and they don't know
Speaker 1: way to whack it with a stick or they're just
Speaker 1: and I understand, look an envy your position because there's
Speaker 1: a lot of folks who are not very tech savvy
Speaker 1: maybe uh you know, they're more in the analog days
Speaker 1: versus digital, so all brand new.
Speaker 2: But how do you how do you see DeFi growing?
Speaker 1: Do you think the US you know, they let off
Speaker 1: the gas a bit and they let things go well.
Speaker 4: I think DeFi really has been whacked from the regulatory side.
Speaker 4: In some cases, they've had very friendly frameworks like VASP
Speaker 4: in EU virtual ASIT Service Provider and then the most
Speaker 4: friendly VIRA in Dubai, the Virtual Assets Regulatory Authority, So
Speaker 4: they have found areas and jurisdictions friendly. Then there's jurisdictions
Speaker 4: that were just like open, like your offshores like Bermuda, Panama,
Speaker 4: that sort of thing for a first world regulatory whether
Speaker 4: that's HKMA or EU or US. It's still a very
Speaker 4: hot topic because it's still very nascent relative and there's
Speaker 4: a high amount of innovation because it's driven by liquidity
Speaker 4: and incentives. But we really haven't had a lot of
Speaker 4: standards come in, a lot of transparency come in, and
Speaker 4: a big part you know we're.
Speaker 3: Here at smart Coon this week is chain Link.
Speaker 4: Is part of the reason why I believe it is
Speaker 4: my personal opinion of defied two point zero. Why haven't
Speaker 4: we had like a defied summer two point now is
Speaker 4: because when you look at a lot of the technology
Speaker 4: of ethereum and other application layers, they really lack a
Speaker 4: significant data later right, Working on trading data for over
Speaker 4: two decades, data is everything, right, and you know, I
Speaker 4: could just rattle off, you know, location of the asset,
Speaker 4: how do you identify the asset pricing of the asset
Speaker 4: trades all that you know petabytes of data for asset trading, well,
Speaker 4: DeFi does at any petabytes, but even still you have
Speaker 4: a massive data footprint. And the innovation of chain link
Speaker 4: has announced this week with ACE and CRE and obviously
Speaker 4: their crushing protocol CCIP has been really fundamental and so
Speaker 4: especially with the platform we're looking at. Even three six
Speaker 4: four three has massed simply benefit from chain links, new
Speaker 4: data infrastructure, and a lot of defive protocols are here
Speaker 4: to kind of grow and build what they're capable of
Speaker 4: because of this new rich data availability set.
Speaker 1: Yeah, I love DeFi I love the ability to you know,
Speaker 1: be my own bank, so to speak, right and go
Speaker 1: out and do these things.
Speaker 2: And I hope the regulators can get it right. And
Speaker 2: they don't.
Speaker 1: You know, they don't come down too heavy, and they
Speaker 1: let the innovation flourish. And yes, you have to put
Speaker 1: guard ris in place, I understand that, and but I
Speaker 1: hope the United States can get that right because I
Speaker 1: know that's the market structure is in play, but it
Speaker 1: doesn't include DeFi.
Speaker 4: No, no, But I think I think where we are
Speaker 4: in environment with the SEC and CFTC and just OCC
Speaker 4: and in general, they're open, right, And I think it's
Speaker 4: a little bit of maturity on our side, on the
Speaker 4: blockchain side, to come around to standards, come around to
Speaker 4: common asks. You know, the government's down in the business
Speaker 4: of choosing winners or losers, right Like everyone benefits equally
Speaker 4: from from different things. So it's what I call a
Speaker 4: practicality I think is the word I would use. It's
Speaker 4: no longer an antagonistic thing where like you know, even
Speaker 4: a you know, previous administration, when I presented to the
Speaker 4: finn Hub and SEC, they were very good, but it
Speaker 4: didn't go anywhere.
Speaker 3: A lot of people were scared about it.
Speaker 4: Now with the Seccrypto task, for many firms are going
Speaker 4: and having a great experience, but you can imagine the
Speaker 4: overwhelmingness from the regulators because they have a gap, right,
Speaker 4: they have rules and laws, and then you have new
Speaker 4: technology and then how do you bridge that gap? Innovation
Speaker 4: exemption is a great way to fulfill that gap, but
Speaker 4: defies a whole other level of heart because how do
Speaker 4: you classify these things? Like if you remember when UNISWAP,
Speaker 4: they were going after them saying, hey, you got a KYC,
Speaker 4: everyone that goes through you're like almost a broker.
Speaker 3: Dealer, and that was crazy classification.
Speaker 4: And what we're actually doing in DeFi whether it's a
Speaker 4: credit lending facility or whatever that's on you know, the
Speaker 4: industry to come together and say, hey, we think it's
Speaker 4: a virtual asset activity. We think traditional activity that's really
Speaker 4: going to be depending on the assets themselves present. But
Speaker 4: I don't think the answer, and I don't think the
Speaker 4: regulators think it as well, is to lock down define
Speaker 4: to some like you know, tedious regulatory thing. I think
Speaker 4: that's why permission tokens are going to have their place,
Speaker 4: because they answer a lot of those concerns, and I
Speaker 4: think the data infrastructure at Chain Links building will also
Speaker 4: help allow those concerns. And then so it's a mature
Speaker 4: it's more of a technology maturity thing that we then
Speaker 4: can codify into policy and standards.
Speaker 2: Yeah.
Speaker 1: Absolutely, Denni's great stuff. Thank you so much for joining me,
Speaker 1: and I'd love to have you back on for you know,
Speaker 1: as things launch on your end and we get the
Speaker 1: details from you.
Speaker 2: Thank you so much, Thank you so much, appreciate your time.