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

Episode Transcript
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Speaker 1 (00:05):
Hey, folks, we are recording at Chainling smart cohon event
and joining me is Dennis O'Connell, who is the president
of EERC three six four three.

Speaker 2 (00:13):
Dennis, great to have you.

Speaker 3 (00:14):
Thank you for having me. Appreciate it.

Speaker 1 (00:16):
Yeah, Dennis, I'm very curious to learn about what you're
doing as it relates to building ethereum and different types
of ways people can tokenize and so forth. But tell
us a bit about yourself. You know where you're from.
How'd you get into crypto?

Speaker 4 (00:29):
Oh?

Speaker 3 (00:29):
Yeah, I love, I love my crypto story.

Speaker 4 (00:31):
So my background, I'm from original Long Island, grew up
outside of New York City for most of my life.
My background is actually engineering, mechanical and aerospace engineering. So
I worked FANASA for a couple of years, and then
I did almost two decades sprint in capital markets on
derivatives trading and even collateral, so working on a few

(00:51):
major banks along the way. And then I was red
pilled by a very famous bitcoin kol Andreaspolis in twenty thirteen.
He came to Chicago and uh, it was me and
a bunch of guys from all the marketmakers or whatever
you know, Cold Chicago nine and a nice bars ten

(01:12):
thirty at night, and he came in and just absolutely
laid in and gave us the gospel of bitcoin and
we never looked back. And then I went full time
into Defire in twenty twenty and.

Speaker 3 (01:22):
It's been it's been venture ever since.

Speaker 2 (01:25):
Man, I love Andreas.

Speaker 1 (01:27):
I learned a lot about bitcoin and blockchain tech in
early days on Andreas as well.

Speaker 2 (01:31):
He's like, it's like a write of passage to listen
to him.

Speaker 4 (01:34):
Right, Yeah, yeah, it was, And we thought it was
a hobby for a while. And so like I consider
myself part of that twenty seventeen generation of crypto, like
Ethereum was my like first real blockchain or it's just
really getting into it, sure, But before that I was
messing around with A six and all the other stuff
we could actually mind yourself.

Speaker 3 (01:52):
But I never thought it would be a full time thing.

Speaker 4 (01:54):
And now it is my full time and it's it's fantastic.

Speaker 2 (01:58):
So tell us what is your C three six four three?

Speaker 4 (02:01):
ERC three six four three was called a permission token standard.
So everyone knows er C twenty or a C seven
twenty one, right, So where does these numbers come from?
So easy to say, well, it was the three thousand,
six hundred and forty third proposal for an Ethereum Improvement
EIP right and your C twenty and seven twenty one
we know so well because of how well adopted they are.

Speaker 3 (02:22):
Your C seven twenty is the fungible token standard.

Speaker 4 (02:25):
You're seven twenty one is a non fungible token standard.
You have eleven fifty five. You have implementations like fourteen hundred,
a few flavors, right, you have the vault standard like
four six two six. So there's actually a lot of
open standards in Ethereum. Ethereum actually prides itself as being
the leader in terms of community adopted standards. Right, So
ear C three six four three is a is a

(02:46):
final standard. It's in the canon of tokens just so
you can think of as EERC seven twenty one or
is RC twenty And it's what we call permission token,
so it's not meant to compete. It does its own thing,
which is around on chain permission control identity.

Speaker 3 (03:00):
When we'll get into all that, So.

Speaker 1 (03:02):
Is this conducive to like institutions that want to tokenize
and put different types of assets on Ethereum.

Speaker 4 (03:09):
So right now there's two different ways people will tokenize. Generally,
they generally maintaine ARC twenty that is either a claim
or IOU or something like that where it is no
permission infrastructure. And that's like your token is stocks, so
you see the lot popularity you're of and that's usually.

Speaker 3 (03:25):
For fungibility kind of reasons.

Speaker 1 (03:26):
Right.

Speaker 4 (03:27):
And then you have what we call permission tokens, and
these are your fourteen hundred and three six four three tokens,
And that's where tokens where you actually have the actual
ownership value on chain. And those are needed because the
regulators say, hey, if you want to go on chain,
we need these extra things. We need identity, we need control,
we need registry, and we need compliance. So the future

(03:48):
of our WA's is going to be permission because fundamentally
the regulators prefer some form of permission. But it has
its challenges as we'll get into.

Speaker 1 (03:58):
So you're ERC three six four three. Is it a
company and a group of developers? How are you guys
working on this and how do you benefit.

Speaker 2 (04:08):
In the ecosystem so to speak?

Speaker 3 (04:10):
Yeah, great question.

Speaker 4 (04:11):
So the ARC three six four to three is the
RWA permission token standard for ethereum. Right, and then we
have the nonprofit association that myself and Luke Flampton of
tokeny apex co founded, and Luke and I created the
association to help people organize around the standard to understand
what it means to be a permission token.

Speaker 3 (04:29):
And it's been incredible.

Speaker 4 (04:30):
We've been implemented on over thirty five billion in assets
on and off chain for public and private networks. We
have over twenty three jurisdictions around the world that have
approved the standard, including recently with Project Crypto with the
SEC's Innovation Exemption, and we just got a permission in
Germany as.

Speaker 3 (04:48):
Well with the EPG.

Speaker 4 (04:50):
And we have over one hundred and forty institutional members
as part of the standard, and we've been working with
big institutions here in the United States, including with DCCC.

Speaker 3 (04:58):
So it's been incredible.

Speaker 2 (04:59):
That's great. I mean, that's a lot of institutions that
you're working with.

Speaker 1 (05:02):
Yeah, and you mentioned you got the SEC approval on these, right,
You got the rubber stamp of approval in that front,
which is critical. So it's it's now a matter of
like educating institutions, teaching them how to use this standard
to build what they want to.

Speaker 3 (05:16):
That's that's exactly right, and we don't.

Speaker 4 (05:18):
We don't believe we're for open standards, so we don't
push everyone has to use three six four three, but
we do push for permission unchain and the SEC Crypto
Task Force has been humongously positive for us. So we
were mentioned in innovation Exemption part of Chairman Actin's speech.

Speaker 3 (05:35):
We went to the task Force.

Speaker 4 (05:37):
And so if you're in the US and your issuer
and you want to do a regulation exemption, go to
the SEC, say using three six four three and go
from there.

Speaker 2 (05:46):
That's great.

Speaker 1 (05:48):
And then do you get the support of the Theorem
Foundation And you know, folks like that.

Speaker 4 (05:53):
I have to give extreme credit to the Theorem Foundation.
We have built r C three six four three for
three years and this year I have to applaud the
Ethereum Foundation in a lot of ways. First of all,
I'm always gratified that I got to even work with
them or talk to them.

Speaker 3 (06:09):
I mean, they are truly impressive group of people.

Speaker 4 (06:12):
They are also a very diverse and massive group of
people with a lot of great ideas. And you know,
I have to give a lot of credit to to Tomas,
who's really set the new standard for the company for
a lot of people on the Protocol team, Privacy team
and others who have really shown the capability of ethereum
and theory Foundation. I think it's a new energy for

(06:34):
the Foundation and we at the ARC three six four
three have been embraced now the Foundation and we agree
should not pick winners. They should not say only three
six four to three. They should say a variety. But
they've embraced the idea of permission tokens and the idea
of bringing and engaging with institutions.

Speaker 1 (06:53):
So can this standard be used on the roll ups?
The L two's are just the ethereum layer.

Speaker 4 (06:58):
Well, absolutely, we're We're all on every L two that's EVM.

Speaker 3 (07:02):
We are on ethereum maynet.

Speaker 4 (07:04):
So any EVM or EVM compatible where where they're.

Speaker 2 (07:08):
Oh, that's awesome.

Speaker 1 (07:09):
And what are your thoughts on how etherorem is getting
just like mass adoption from these institutions, you know, like
black Rock the first place they launched their biddle when
you took an as money market fund was on etherorem. Yeah,
so you feel like Etherorem is like let's say the Blayer,
like the Internet where people can just co build on

(07:29):
it is to me, is the only answer.

Speaker 4 (07:31):
Right now, Ethereum is the only one that's been battle
tested at scale. It has the depth and diversity of
technical excellence, it has the resiliency. When we went to
the SEC Crypto Task Force, we were joined by the
Etherom Enterprise Alliance and Etherialized, and only Ethereum can really
stand up to uh, the scrutiny by the regulators writ large, right,

(07:54):
and then there's definitely others, But I think Ethereum still
has some intrinsic values and a growth trajectory that's still
really exciting and being seeing on the inside of what
that looks like. It was always ethereums foundation to lead
and they're not doing that, and that's what's really exciting.

Speaker 2 (08:11):
For sure.

Speaker 1 (08:12):
Now we've seen a lot of Layer twos get launched.
But what's interesting and what really piqued my interest was Sony.
They build a layer to an etherrem called Sonium. And
it's not just your run of the mill. Okay, here's
a layer two, here's another layer to but a corporate
building it. Yeah you see more corporates Deutsche Bank two? Yeah,
do you see more corporates building like their own layer twos?

(08:34):
And what I mean, I think it's a great question, right.

Speaker 4 (08:37):
I think it will depend on what they hope to
accomplish on that layer two. Right, So you could generally
classify layer twos into performance privacy application. You know, some
people make the argument that what a blockchain sell, they
sell block space. Some points, some apps become so large
that they over consume all the block space, and so
maybe they're better off on an app chain or whatever.

(08:59):
I think there's a performance benefit, maybe there is some
sort of technology that they're inventing for the corporate side.
It's it's interesting because we're shifting away from private permission blockchains.

Speaker 3 (09:11):
Which I think myself in the community really never believed in.

Speaker 4 (09:14):
I thought they were great pocs, but they would always
die in a tropic death because you never would have
the liquidity as an open public system. So then we
kind of moved into hybrid and so L two's are
sort of like now that new kind of flavor.

Speaker 3 (09:27):
But it's really more an indication.

Speaker 4 (09:29):
Institutions are more and more embracing open public blockchains, which
is a good thing.

Speaker 1 (09:32):
Yeah, we've seen over the years kind of the capitulation,
if you want to call it that, from folks who
tried to build a private permission chain, but then it
creates the same wall garden problem that existed in TRADFI.

Speaker 4 (09:42):
Yeah, well it's a new I call it newter blockchain,
so that they want blockchain without the actual parts.

Speaker 3 (09:47):
And yeah, I think I got this from Andreas.

Speaker 4 (09:49):
But one thing Andre's installed in to be is do
you see blockchain as another technology like a database or
cloud or do you see blockchain as a society shift
in finance? And the way I see it as a
sidal shift in finance. So to to take the technology
and new itter it down, then you can get people say, well,
this is just attributed database, wh's really the value? Really

(10:11):
accomplished this because you have now over centralization, you don't
have the transparency, and you kind of have this contrivance.
And so that was one of the reasons why I
decided to leave my career in TRADFY, because I fundamentally
believe that permission blockchains really missed the point of these
open systems.

Speaker 1 (10:26):
So, you know, giving your experience in TRADFI, and given
you know, your introduction to bitcoin into early days with Andreas,
what is it like looking back and where we're at
now with I mean the major banks, the major Wall
Street firms all now looking to build tokenized stable coins, ETF's, custody, trading,
you name it.

Speaker 2 (10:44):
They're trying to do that.

Speaker 3 (10:46):
I mean, to me, it's ironic and painful.

Speaker 4 (10:49):
I was so early into this, you know, going from hey,
I think this is cool play with the asex to
then getting the courage in like around twenty seventeen, largely
with our three and when they did the one hundred
and seven million dollar raised with all the banks, so
now where it was no longer voting to speak about
blockchain inside, you know, my day job. And I think

(11:10):
one of the things that people realize is how much
being in the industry was very painful because a lot
of people thought it.

Speaker 3 (11:16):
Was a fraud there, it was a scam.

Speaker 4 (11:18):
They didn't really believe in the tenants, and so having
to have those tough conversations with people who really were
almost antagonistic.

Speaker 3 (11:25):
And that's why I say about bitcoin.

Speaker 4 (11:26):
Bitcoin was meant to be the most antagonistic thing to
the Wall Street system is fully transparent, fully settled. It
was totally disintermediated, and that that challenged a lot of people.
And now to see all these institutions to come around,
it's still unbelievable.

Speaker 3 (11:39):
But there's no reason to sit back.

Speaker 4 (11:42):
And I think the danger has been a complacency that
if we don't continue pushing and working and innovating, that
blockchain will just be here for the future.

Speaker 3 (11:50):
And I don't think we're there yet.

Speaker 4 (11:51):
I know it seems big, but you know, we need
to continue to innovate and really get to a level that.

Speaker 3 (11:57):
We are not even at yet, like we have to
go to. I'll put to you this way.

Speaker 4 (12:02):
There's probably a dozen tokenizers on Ethereum, maybe more. You know,
if everyone those tokenizers tokenize a trillion dollars, they would
tokenize twelve trillion dollars, right, which would be fantastic number.
DTCC alone does eighty seven trillion, and they do several
quad drillion in transaction volumes. So we're like barely the

(12:23):
size of Navidia and Apple combined. Right, So we are. No,
we're not at the gates yet. We're not at altitude
we were, you know, not so low where it's so disruptive.

Speaker 3 (12:33):
We're getting more matures in industry.

Speaker 4 (12:35):
Part of that maturity is the standards, but it's also
the quality of the projects.

Speaker 1 (12:38):
Do you believe that that growth that you're talking about
and that search. Maybe the hockey stick effect, right, will
happen when the market Structure bill passes?

Speaker 3 (12:46):
No, I don't. I think it will.

Speaker 4 (12:49):
The market structure build to me is reflective, like it's
already capturing what's been there. Sure, what will hockey stick
is when serious institutions start bringing serious assets. And what's
hurt this industry has been a series of you know,
setbacks with bad actors that have really materially hurt the
credibility of this.

Speaker 3 (13:06):
And so when you want to.

Speaker 4 (13:08):
Get like real people in real places and they see
some of the antics as happened. You know, I'm being
nice and not gonna name names, but you know, it's
a huge setback for the industry because like, okay, not yet.
And so finally we have an administration and recultory infrastructure
in the US.

Speaker 3 (13:24):
It's more reflective of the rest of the world that has.

Speaker 4 (13:26):
A bit more forgiving, bit more patient, but overall needs
to mature a lot more.

Speaker 2 (13:31):
Absolutely so to al us.

Speaker 1 (13:32):
What's on your roadmap as far as development, what can
we expect in twenty twenty six and things like that.

Speaker 4 (13:37):
Well, my company PSG, we are launching a major platform.
We're calling it the world's first on chain investment bank.
So we'll be giving out more information in the weeks
to come. But we believe fundamentally that permission tokens you're
C three six for three.

Speaker 3 (13:54):
The biggest challenge is that it is.

Speaker 4 (13:55):
Not accessible to DeFi, and so we don't believe in
permission DeFi. I call it oxymoron right right, So permission
has its place when you want to share registry and control.

Speaker 3 (14:05):
However, getting into.

Speaker 4 (14:07):
DeFi, and we're working some really great partners on this
that will announce.

Speaker 3 (14:11):
But my main objective for the year is to launch.

Speaker 4 (14:15):
What we call permission vaults, the idea that you could
take thirty six forty three permission tokens, encumber them and
emit permissionless versions stable coins or twins, and get them
into into DeFi. And so we'll be announcing that with
some really great partners in the weeks to come. There's
also lots of work to do on the regulatory front, yeah,
as well, a lot of work on the open and

(14:36):
open stands front, and of course with Ethereum Foundation coming
active and all the amazing people and teams, there's.

Speaker 3 (14:42):
A lot of work there as well.

Speaker 1 (14:44):
Yeah, we got lots of work to do as an
industry to get to you know, what you were talking
about before, and to get trillions of dollars of assets
on chain, you know with regardless of DeFi. You know,
that's still been a challenge. I know the regulators are
having a hard time understanding DeFi and they don't know
way to whack it with a stick or they're just
and I understand, look an envy your position because there's

(15:06):
a lot of folks who are not very tech savvy
maybe uh you know, they're more in the analog days
versus digital, so all brand new.

Speaker 2 (15:14):
But how do you how do you see DeFi growing?

Speaker 1 (15:18):
Do you think the US you know, they let off
the gas a bit and they let things go well.

Speaker 4 (15:23):
I think DeFi really has been whacked from the regulatory side.
In some cases, they've had very friendly frameworks like VASP
in EU virtual ASIT Service Provider and then the most
friendly VIRA in Dubai, the Virtual Assets Regulatory Authority, So
they have found areas and jurisdictions friendly. Then there's jurisdictions
that were just like open, like your offshores like Bermuda, Panama,

(15:44):
that sort of thing for a first world regulatory whether
that's HKMA or EU or US. It's still a very
hot topic because it's still very nascent relative and there's
a high amount of innovation because it's driven by liquidity
and incentives. But we really haven't had a lot of
standards come in, a lot of transparency come in, and

(16:06):
a big part you know we're.

Speaker 3 (16:07):
Here at smart Coon this week is chain Link.

Speaker 4 (16:10):
Is part of the reason why I believe it is
my personal opinion of defied two point zero. Why haven't
we had like a defied summer two point now is
because when you look at a lot of the technology
of ethereum and other application layers, they really lack a
significant data later right, Working on trading data for over
two decades, data is everything, right, and you know, I

(16:32):
could just rattle off, you know, location of the asset,
how do you identify the asset pricing of the asset
trades all that you know petabytes of data for asset trading, well,
DeFi does at any petabytes, but even still you have
a massive data footprint. And the innovation of chain link
has announced this week with ACE and CRE and obviously
their crushing protocol CCIP has been really fundamental and so

(16:56):
especially with the platform we're looking at. Even three six
four three has massed simply benefit from chain links, new
data infrastructure, and a lot of defive protocols are here
to kind of grow and build what they're capable of
because of this new rich data availability set.

Speaker 1 (17:12):
Yeah, I love DeFi I love the ability to you know,
be my own bank, so to speak, right and go
out and do these things.

Speaker 2 (17:20):
And I hope the regulators can get it right. And
they don't.

Speaker 1 (17:23):
You know, they don't come down too heavy, and they
let the innovation flourish. And yes, you have to put
guard ris in place, I understand that, and but I
hope the United States can get that right because I
know that's the market structure is in play, but it
doesn't include DeFi.

Speaker 4 (17:36):
No, no, But I think I think where we are
in environment with the SEC and CFTC and just OCC
and in general, they're open, right, And I think it's
a little bit of maturity on our side, on the
blockchain side, to come around to standards, come around to
common asks. You know, the government's down in the business
of choosing winners or losers, right Like everyone benefits equally

(17:59):
from from different things. So it's what I call a
practicality I think is the word I would use. It's
no longer an antagonistic thing where like you know, even
a you know, previous administration, when I presented to the
finn Hub and SEC, they were very good, but it
didn't go anywhere.

Speaker 3 (18:13):
A lot of people were scared about it.

Speaker 4 (18:15):
Now with the Seccrypto task, for many firms are going
and having a great experience, but you can imagine the
overwhelmingness from the regulators because they have a gap, right,
they have rules and laws, and then you have new
technology and then how do you bridge that gap? Innovation
exemption is a great way to fulfill that gap, but
defies a whole other level of heart because how do

(18:35):
you classify these things? Like if you remember when UNISWAP,
they were going after them saying, hey, you got a KYC,
everyone that goes through you're like almost a broker.

Speaker 3 (18:42):
Dealer, and that was crazy classification.

Speaker 4 (18:45):
And what we're actually doing in DeFi whether it's a
credit lending facility or whatever that's on you know, the
industry to come together and say, hey, we think it's
a virtual asset activity. We think traditional activity that's really
going to be depending on the assets themselves present. But
I don't think the answer, and I don't think the
regulators think it as well, is to lock down define

(19:06):
to some like you know, tedious regulatory thing. I think
that's why permission tokens are going to have their place,
because they answer a lot of those concerns, and I
think the data infrastructure at Chain Links building will also
help allow those concerns. And then so it's a mature
it's more of a technology maturity thing that we then
can codify into policy and standards.

Speaker 2 (19:25):
Yeah.

Speaker 1 (19:26):
Absolutely, Denni's great stuff. Thank you so much for joining me,
and I'd love to have you back on for you know,
as things launch on your end and we get the
details from you.

Speaker 2 (19:36):
Thank you so much, Thank you so much, appreciate your time.

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

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