Ondo Finance is Leading the Tokenization Surge! with Nathan Allman

Episode Transcript
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Speaker 1 (00:04):
Hey, folks, we're recording at Chainling's smart Con event. And
joining me today is Nathan Allman, who's the founder and
CEO at Ondo Finance. Nathan, great to have you. Yeah,
thanks for having me, Nathan. Ondo's been in the news
a lot. I've been following Ondo closely, getting a lot
of adoption, and I would love to hear about the
founder's story, so to speak. What led to you creating Ondo?

Speaker 2 (00:27):
Sure?

Speaker 3 (00:27):
So, I founded Onto about five years ago. I previously
worked in traditional finance, So originally I was in private credit,
and then I was at Goldman on the digital assets
team immediately prior to founding Ondo. When I was there,
we looked at a whole bunch of blockchain based platforms
that tried to you know, drive post trade efficiencies to

(00:51):
different asset classes. And you know, that provided me an
opportunity to go pretty deep into the weeds of understanding
why things are the way they are are in trad FI.
And you know, very much became apparent to me that
that there's been a path dependent evolution that has resulted
in a bit of a Frankenstein, uh. That is the

(01:11):
you know, current global clearing and settlement system for you know,
all sorts of different assets, and you know, I think
you know, in parallel, I was very active in DeFi
in twenty twenty, twenty twenty one and saw that DeFi
presented a you know, radically better infrastructure for you know,
certain financial services you know that interoperate really naturally with

(01:36):
one another.

Speaker 2 (01:36):
You know, we talk about this idea of like money.

Speaker 3 (01:38):
Legos and composability, and you know, DeFi is twenty four
to seven and transparent and always on. But you know,
at the time DeFi was being applied purely to largely
like DeFi infrastructure, tokens and other cryptonative assets, right, it
was very you know, very self reflexive, and so I

(01:59):
became very excited about the idea of, like, how do
we repurpose you know, what we have in DeFi and
start to apply it to you know, to actually drive
greater accessibility and transparency and you know, the real financial system,
you know, merging DeFi and trad FI if you will, sure,
And so you know, I left five years ago to
to do that. You know, our mission at ONDO is

(02:21):
to expand accessibility for financial products and services. You know,
we token aze assets. I think that's a necessary part
of you know, making DeFi compatible attritional assets. You know,
run the assets on chain, but we also build DeFi
protocols and define infrastructure to make those security tokens you know,

(02:42):
more usable, you know, to to given greater utility, I
should say absolutely.

Speaker 1 (02:47):
And some of the adoption I've seen for Onto by
folks by such as MasterCard, JP Morgan. So are these
institutions are they now past the taboo phase or to
stigma of you know, cryptos scam and then now looking
to actually build on blockchain rails.

Speaker 2 (03:04):
Yeah?

Speaker 3 (03:05):
Absolutely, yes, And that feels really good because that's a
very recent change. Sure, you know, the I would say
there's a big breakthrough in twenty twenty three, twenty twenty
four after black Rock got into the space with their
token is Treasuries Fund, which came shortly after ours. And
then that led to Franklin Templeton and Fidelity and Wisdom

(03:26):
Tree and Wellington and you know a bunch of asset
managers seeing the opportunity of tokenization as initially you know,
a new distribution pathway for their.

Speaker 2 (03:34):
Products, right.

Speaker 3 (03:36):
And then you know, more recently we're seeing banks and
broker dealers and you know, and and a lot of
that is post. You know, the new SEC coming in
and right, you know, opening the doors to particularly banks
doing you know, interesting work on public blockchain. So you know,
now we're really seeing the full spectrum of institutions active.

Speaker 2 (04:00):
Engaging on chain, you know, in various ways.

Speaker 1 (04:04):
So, Nathan, I think you're a great person that answered
this question for those who are still trying to grasp
what is tokenization and what are the benefits answering to
So what question why do we need to tokenize? Ask?

Speaker 3 (04:16):
Yeah, I mean the answer varies quite a lot based
on the target audience. So you know, I'll segment into
two main buckets. Sure, and that's those in emerging markets
who might not have great access to financial products and
services today. So for them, tokenization is just a very

(04:36):
simple access play, so much in the way that stable
coins have driven access to the dollar in Latin America
and Turkey and Southeast Asia and so on. Sure are
tokenized stocks in our on a global markets platform which
launched just six weeks ago. You know, they're they're driving
accessibility to stock spawns and ETF's high quality US financial

(04:57):
assets to you know, those outside the US in emerging markets. Sure,
And you know that is a very cryptonative value prop.
I mean, that is one that's building on the fact
that you know, Bitcoin was this innovation that gave us
this ability to have digitally scarce value that could be
you know, transferred peer to peer, uh, you know, twenty

(05:19):
four to seven without using an intermediary.

Speaker 2 (05:22):
So that's one that we're very very excited about, right.
It was very mission.

Speaker 3 (05:25):
Aligned for us, and you know, very core to the
ethos of the space.

Speaker 2 (05:31):
You know.

Speaker 3 (05:31):
The other is around the use of token is securities
in DeFi. Right, So as we were talking about earlier,
you know, DeFi has certain advantages over traditional finance from
an infrastructure perspective.

Speaker 2 (05:48):
You know, a big one is.

Speaker 3 (05:50):
The unbundling of financial services. So today, right, you know,
you hold your securities at a particular broker dealer and
then you have to get trade, execution and lending and
custody you know, and advisory and all sorts of services
from that broker dealer. And if you want to, you know,

(06:10):
if you want to trade elsewhere, you know, or get
a margin loan from someone else, you to move all
your securities to another BD and that takes like days
or weeks and as a result, you know, each of
these beds, Each of these platforms is able to you know,
charge a lot of hidden fees if you will. Like
margin rates are like pretty crazy for retail in the US, right,

(06:33):
and there just isn't as much competition as there would
be in a more like open composable environment like what
we see in DeFi. So we're only at the early
innings of doing this. But once we have DeFi with
a bunch of token is stocks in it, right, I
think that's going to open.

Speaker 2 (06:52):
The door to.

Speaker 3 (06:54):
Like cheaper, better financial services for even folks in the US.

Speaker 1 (06:59):
And in addition to what you mentioned with DeFi and
accessibility is it, also we're kind of exporting our capital markets.
If you the person in Latin America or in some
country in Africa who couldn't access these assets now can
But it also brings in liquidity to the issuers.

Speaker 3 (07:16):
Oh yeah, I mean hugely a creative to issuers. I mean,
you know, asset managers are a subset of that, right
and seeing the value prop of selling their funds to
more folks, but corporates as well. So for now we're
tokenizing stocks of corporations that already trade on NASADAC and

(07:37):
New York Stock exchange. But sure, certainly tomorrow, you know,
we could be tokenizing stocks for companies that might not
actually need to or want to trade on you know,
those those big exchanges.

Speaker 1 (07:50):
Right, And we also do you do you see an
opportunity for private equity, Like if I'm an entrepreneur and
I want to raise capital and I have the world,
I have more opportunities out outside of just the United
States to have participants. And it doesn't necessarily have to
be a fund. It could be an individual that I
can access some more liquidity and more people can participate.

Speaker 2 (08:14):
Yeah.

Speaker 3 (08:14):
Absolutely, it's not our current focus. You know, we have
to sequence these things, and I just don't think it's like, right,
quite the lowest hanging fruit. Yet there are there are
other challenges that tokenization can't solve that need to be
worked through as well, like reducing info asymmetry and like
you know, creating better price discovery mechanisms for a lot

(08:36):
of these assets. Sure, but those are being solved in parallel.
And you know, you look at certain asset managers. You
look at Apollo for instance, They're doing a lot of
work to make private assets more liquid and more retail
accessible through they have certain like ETFs with private credit

(08:56):
in them. So there's there's definitely a trend of private
assets becoming more retail accessible, and you know, tokenization is
an accelerant of that trend.

Speaker 1 (09:08):
And then do you eventually see assets like real estate
being tokenized and precious Well, there's some precious metals being
tokenized right now, some folks that put gold on chain
and so forth, but real estate being the largest asset
class that going on chain. And maybe folks tokenize some
building here in the United in the Manhattan, I should say,
and that's appealing to a lot of folks because hey,

(09:29):
I can get a fraction of this property in the
middle of Manhattan. That's probably a good investment, right, just
thinking long term.

Speaker 2 (09:37):
I don't know, it's not my space.

Speaker 3 (09:39):
I would say that real estate falls in the camp
of areas where there's a lot of problems that tokenization
can't solve. Like it might be part of the solution,
but you know, the status quo of I guess there's
a couple of camps, right, there's the folks that are
trying to like, you know, put title on chain for

(10:00):
like sort of I don't know, lower value, you know,
single family or you know, type real estate, right, and
then you know they have to contend with like all
sorts of very antiquated you know, laws and rags and
processes for that.

Speaker 2 (10:16):
So yeah, I don't know how that's going.

Speaker 3 (10:19):
And then to your point, there's other folks that are
trying to take some like marquee property, like you know,
the the Burj Khalifah. Let's like, you know, tokenize that
and make it more accessible. I feel like that's a
little more tangible, Like sure we would know how to
do that for instance, like that actually would it be
very very hard to do, So I don't know. I
think that's that's more feasible. I don't know what the

(10:41):
demand is for that right now.

Speaker 1 (10:42):
So I think your point you brought up there demand
is important because if you don't have a market or
liquidity for it, then like dead right, who's going to
want to get participate? But it just depends on the
asset or the building or whatever it is. If it
has mass penetration, I guess and mind share whatever you
call it, and people know, oh the Empire state building,
I know what that is. And I could be in

(11:03):
another country. Yet let me get a crew tokens of
the Empire state building or something like that.

Speaker 3 (11:07):
And this is why we started by tokenizing assets that
already have established market prices and deep liquidity. Yeah, so
we don't you know, if you tokenize an asset that
isn't yet liquid, then you have to build both sides
of the marketplace at the same time. Whereas you know,
in our case, like even if there aren't any other

(11:30):
new sellers, like there's a lot of sellers on the
stock market, and we're just like making you know that
liquidity available on chain. So it works for a buyer
almost just as well, whether you know they're coming to
our platform the day that it launched, or you know,
in a more distant future where there's a.

Speaker 2 (11:50):
Whole bunch of sellers on chain.

Speaker 3 (11:51):
I mean, at some point we may have more actual
liquidity formation even for public stocks on chain, particularly as
we start thinking about weekend trading, where there isn't yet
liquidity traditionally. But we already have a lot of liquidity,
so the product works quite well even without new price discovery.

Speaker 1 (12:13):
What's on your roadmap that you can highlight.

Speaker 3 (12:18):
We think that it's table stakes for token ied stocks
to really take off. That you know, a holder of
a token I stock has access to all of the
same services at at least you know, as good or
better terms as would a holder of traditional stock. So today,
I mean really just in the last six weeks, they

(12:38):
have the ability to buy and sell at the same liquidity,
but they don't yet have the ability to like margin
their token I stock at the same sort of margin
rates that you could get at you know, a prime
brokerage account in the US. So offering offering that is
very top of mind, right, Maybe that's all all league

(13:00):
for now. There's sort of other services that you should
imagine that folks have access to, you know in the US,
like you know, derivs would be a big one that
there's still a need for on chain.

Speaker 1 (13:10):
So yeah, well, a lot of folks are looking forward
to the Market Structure Bill passing. Uh that's we got
the government shut down and the bills in the Senate.
But once that passes, what do you impact do you
think it's going to have on the industry as far
as innovation and growth?

Speaker 2 (13:28):
It's a good question.

Speaker 3 (13:29):
I mean, it's not something that's super top of mind
for us because I think it mostly contends with questions
related to like what isn't isn't a security, or at
least that's like the crux of the focus of much
of the industry. Sure, we're just in the land of
accepting that everything that we deal with is a security. Okay,

(13:53):
So you know, we are able to make quite a
lot of progress around things like bringing token is securities
into the US, even without having to wait for new legislation.

Speaker 1 (14:03):
Oh for sure, Nathan, great stuff. We're going to have
to do a longer form interview in person, am I
study at some point, and I'm looking forward to the
future updates Aron onto. But thank you so much for
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