The Bid
HEAR HERE

The Bid podcast

The Bid breaks down what’s happening in the markets and explores the forces that are changing investing.
Hear thought leaders from and outside of BlackRock discuss the trends shaping society and why they matter, such as geopolitics, sustainability and technology.

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Explore below trending podcast, library of other podcasts and available platforms to listen to.

Trending now

Picture of computer chips

Blockchain and crypto: next-gen investing, tokenization and NFTs


An international bank just declared decentralized finance a “decentralized illusion” but the industry continues to gain steam. Greg Schvey, CEO of Axoni, and Robbie Mitchnick, Head of DLT & Digital Assets at BlackRock discuss how blockchain is changing investing, why tokenization is increasing efficiency, and how NFTs fit into the larger blockchain picture.

 

  • Description:
    An international bank just declared decentralized finance a “decentralized illusion” but the industry continues to gain steam. Greg Schvey, CEO of Axoni, and Robbie Mitchnick, Head of DLT & Digital Assets at BlackRock discuss how blockchain is changing investing, why tokenization is increasing efficiency, and how NFTs fit into the
    larger blockchain picture.
    SARA: This month, the Bank for International Settlement, or B-I-S, a financial institution owned by central banks worldwide, called decentralized finance, or DeFi a quote “decentralized illusion.” The bank says DeFi is severely vulnerable due to high leverage, liquidity mismatches, and the lack of internal shock absorbers, like banks, among other reasons. But…all this comes as the global blockchain market is rocketing. In fact, market researcher Grandview Research expects the industry to top 394 billion by 2028, a compound annual growth rate of 82 percent. -MUSICWelcome to The Bid, where we break down what's happening in the markets and explore the forces changing investing. I'm your host, Sara Shores. This month, we’re exploring how technology, in its many roles, is impacting society and investing. On our final episode of our tech mini-series, we’re talking about blockchain. Today, I’m pleased to introduce not one, but two guests - Greg Schvey, CEO of Axoni, and Robbie Mitchnick, Head of DLT & Digital Assets at BlackRock. Together, we’ll break down how blockchain is changing the way global transactions take place, how transparency could force change in institutional banking and capital markets and the value of NFTs. Welcome Greg and Robbie.
    GREG: Thank you very much for having me. Great to be here.
    ROBBIE: Thanks, Sara, well it's great to be back on The Bid and thanks for having me today.
    SARA: Robbie, I want to start with you. For years, the word on Wall Street has been bullish on blockchain, bearish on crypto. But today, crypto is actually the technology that seems to be going more mainstream while blockchain is still struggling to gain wider adoption. Why do you think blockchain as a core technology has been slower to take off outside of crypto? And how would you characterize the interplay between the two today?
    ROBBIE: I think some of these attempts to draw this clear delineation between concepts in this phase, blockchain, crypto, digital assets, DeFi, et cetera, can be misguided. The reality is that all these pieces have a certain degree of commonality and overlap. But if we want to zero in on enterprise blockchain specifically, and typically we're talking about that in the context of permissioned systems, then I think one of the challenges that they've had is that any time you pit permissioned,
    closed networks against open, permissionless, decentralized networks, typically the latter is going to have an advantage.
    It's just like we saw with the internet. The open, decentralized, permissionless internet won out over private intranets. That is very much at play here. And so you might say, well, why don't enterprises, why doesn't capital markets just move to that model? And it's simply not practical today for many large financial institutions to turn
    their operations and their systems over to a truly open, decentralized network. So this concept of enterprise DLT in a permissioned sense, has helped to address some of the needs in the interim of large financial institutions around privacy of transactions around AML and KYC, around trust in terms of how secure a system is. But over time, it's possible we'll see financial institutions get more and more comfortable with a more open, permissionless system.The other element of this, I think, comes around adoption, timing, and governance. So if you think about crypto, crypto adoption can happen by any individual or institution as soon as they're ready. Whereas when we talk about enterprise blockchain networks, you really need all the critical players in an ecosystem to be ready to adopt it
    roughly the same time.
    SARA: So that's really interesting, Greg. I'd love to hear your perspective on how that ecosystem is shaping up for
    Axoni. You use a distributed ledger technology, or DLT,as the backbone of your platform with the mission of transforming the infrastructure for global capital markets. But to Robbie's point, you need all the players in the ecosystem to try to participate. So how are you working to try to break through?
    GREG: So there's a whole bunch of different pieces that have to work in coordination to get something like this going. Robbie definitely touched on a couple of the really key ones. So one is there's the technology component, second is going to be the business case that you're building around it. And the third is going to be building up sufficient adoption, really out of the gate, or at least giving people enough sense of belief that that's going to happen fairly quickly to make the investment in the time and the energy. If you think about the scale of the shift of what we're talking about with enterprise DLT, you know it is huge, the amount of value that we're talking about moving over to these types of networks.
    SARA: Greg, take us back to the way that Axoni is working with BlackRock. Can you say a little bit more about how that partnership came to be and how we're working together?
    GREG: Certainly, so Axoni has been building out industrial grade distributed ledger networks since 2017. A couple of years ago we began working with some of the larger banks to establish a network for equity swaps, which are enormously difficult to manage due to the complexity of the data and the processes required. One of the interesting aspects of our business is that our clients quickly realize that the more of their counterparties are in the network, the better life becomes for everybody involved. So they aren't shy about making introductions. BlackRock as a major counterparty for most of the largest sell side firms quickly became a top priority for us in that process. And to their credit they very quickly realized the benefits of what we were building and became strong
    supporters since then. So this summer we announced publicly that BlackRock was live on that network and that we had built out an integration with the Aladdin platform which has a whole bunch of other longer term implications for the network, for the relationship as well.
    SARA: So one of the applications of blockchain that I've been reading about that I think is particularly compelling is the tokenization of financial assets. Robbie, what's the implication on capital markets for tokenized assets? How might that change things like private markets in the way that we trade different assets?
    ROBBIE: So maybe to rewind for a second, if we define a token as in effect an ownership right issued in a digitally native format on a blockchain where that token or that record then can be traded, settled, recorded directly over the blockchain as opposed to in some centralized, siloed database. Obviously there are a lot of applications of that. I think of tokenization as in many ways an extension of some of these enterprise blockchain concepts and networks that are being built and one that potentially makes them significantly more valuable. If you think in the general sense of what the value prop of tokenization is for capital markets, it's things like global interoperability, real time transferability and frictionless settlement, programmability, divisibility, and where desired, transparency. So today in capital markets there's this huge constellation of intermediaries that do the work of ensuring the rights, the, obligations the rules are followed and the various data records match up to each other.
    In the future a lot of these vital functions could be embedded into code within tokens and then executed automatically. So clearly that would lead to a significant increase in efficiency and automation across the system. Now in practice, there are a lot of frictions on the way to crossing that chasm from here to there in transforming
    from our current infrastructure to a tokenized world. And that's things like regulatory clarity, comfort in the security, the existence of institutional grade issuance
    providers, of institutional grade alternative trading venues for tokenized securities to trade on. And in this case, it's the weakest link that defines the strength of the system. You really need all of those elements to be firing at once. So progress in some sense has been slow. But that's not to say there isn't meaningful progress.
    If you look at just the breadth of use cases that are being pursued for tokenization, that spans equities, it's both public and private, fixed income securities, funds, commodities, real estate, of course now art and many other things down the line. So we're seeing that proliferation of projects trying to take advantage of this tokenization theme. And of course, the most significant asset class of all that's being tokenized is cash itself. And so that's this whole ecosystem around stablecoins as well as potentially central bank digital currencies.
    SARA: Now, you've both touched upon some of the potential transformations and financial services around things like asset tokenization, asset settlement. Greg, what are the things that you're most excited about in terms of innovations and financial services? And how do you think blockchain can try to catalyze those transformations?
    GREG: So in the enterprise space I do see it happening in a sequence. So first, and what we're seeing today is really around the coordination of data and processes, particularly for contracted assets like derivatives which are created bilaterally. And there is a massive, well understood need to improve coordination across parties. And so the reason this is a first step is that you can add incremental value every time a counterparty joins the network rather than having to try to convert an entire market at one time. But where I see that going is really two other major next steps. So one is with the data available on the core ledger, for many of these assets we expect that the next major advancement is going to be the integration of other vendors to take action on those. And then you'll ultimately end up with the seamless coordination of activity across all of these various processes happening across these different parties. Which can be extraordinarily complex based on rigid bespoke connections today now happening in a standardized way. So what that does is it gives end users the ability to easily onboard or off board vendors to act on their data, enabling
    the market to pick the vendor that performs the best, not necessarily be stuck with the ones that are just entrenched because of all those bespoke connections that have just been there for a very long time. So at Axoni we refer to that as the digital assembly line. And it's a process already in working with a number of vendors to integrate into our networks to kind of build out that next phase of value. And then the third is, I do think the point of tokenization we were talking about before is that we do expect that there will be a migration of existing securities markets on ledger particularly as the industry pushes towards T zero. I think what a lot of people don't really understand about expediting settlement though, is that the reasons for delay are really not as much technical as they're really due primarily to the coordination of processes across parties, reconciliations, allocations, things like that have to happen. As a final thought on that, on the crypto side I would argue, actually that we're on the cusp of widespread adoption within institutional finance, at least for Bitcoin. And we see that as kind of the gateway to many other things. The general legitimization of cryptocurrencies as an asset class I would argue has already occurred. The infrastructure is available, the transact at least in most of the major currencies for institutions. And we're seeing things like sell side research becoming more common, digital asset teams being stood up at many of the largest firms, and even something as simple as clearing Bitcoin futures is something that's become pretty common. So I think that the impact is going to be both infrastructural as well as asset, creating an entire new asset class for a lot of these institutions to act in.
    SARA: I think we would be remiss if we didn't talk about challenges and risks. What do you think the biggest challenges are that stand in the way of these potential transformations and how could it all go wrong?
    GREG: As the institutional side and the public side start to blend, I think what we're going to find is that you're going to find more areas of the public networks that are regulatory compliant. And you're going to find more access within the institutional frameworks for accessing those public markets and cryptoassets.
    And that line as it starts to blur is something that can be very powerful for both communities as they exist today and kind of bring them together. And if that were, to if people were averse to doing that, I think everybody would miss out a pretty big way. But I think we also have, there is risk of regulatory overhang on these things that could really impact innovation in a major way. I will actually say I do think that from what I've seen so far for the most part, most developed markets, the regulation
    around crypto blockchain as it's relevant has actually been fairly rational and founded in a lot of the existing regulations which exist for a reason. It is not always super convenient for everybody in the space but the application of existing laws has so far really not squashed innovation too much. But there is a risk that places that are financial centers today stop becoming financial centers because the world operates differently. So I think as regulators are sorting these things out, continuing to be pragmatic about the way that it's getting addressed is going to be really important to make sure that places like the United States, and Europe, and others don't miss out on a major foundational opportunity for the next 100 years.
    SARA: So, I can't resist asking you guys about NFTs because the tokenization of art has really taken off this year. For the first time in 2021, there's even a top 10 list for NFTs and it included the first ever tweet, a lot of digital art, and even a pair of NFT sneakers that were sold for more than $3 million. So what do you think NFTs are really about? Is it speculation? Is it adoration? How far do you think NFTs will go and how could they change the way we consume?
    ROBBIE: I'm curious for Greg's views on this. I'll confess that in the early days of this trend, I missed it on NFTs. I'm the type of person who's never seen a lot of value in real world autographs or collectibles. And so I didn't see a lot of value in the digital version of that, especially when people can screenshot and copy, and paste, et cetera. But I think that misses the point. NFTs solve a real problem, which is how do you establish strong property rights over digital items? That's the innovation of NFTs. An NFT can represent anything. It can be real estate, a song royalty, a financial instrument, art, or yes, digital sneakers. And there's no question that a significant share of NFT activity today is just absolutely unfettered speculation. But underneath that there's an ongoing trend of digitization across all aspects of our economy. And so digitally
    native assets will become more and more critical. And NFTs have the capability to handle the property rights for these digital items. So in the same way that strong property rights are fundamental to growth and innovation in the physical economy, so too will strong digital property rights be a critical foundation in enabling an innovative digital economy.
    GREG: Yeah I would tend to agree with most of that. I think what we have to keep in mind is that the market for unique items, whether it's art, or sneakers, or anything like that, that's all existed for a long time. So the digitization of that, given that there's now a technology that can be applied to it, doesn't seem terribly surprising. I can't say I predicted it quite the way it's gone. But you know, it doesn't surprise me to see that there's been an application there. The other thing you have to keep in mind is that what we're seeing is that the DeFi world where a lot of these NFTs are being used in virtual capacities is also a bit of a testing ground for things that could happen in the real world. So we're seeing things like titles for digital property. When I say property, I mean like in virtual worlds. I think there's something like $6 billion worth of property, digital property, that's been bought in this virtual world, which is up from zero three years ago or whenever it was when they got started. And there's mortgages against it, and there's people trading them and transferring them. And so you might say, OK, that's ridiculous, why does
    somebody want a place in a virtual world? Well you know, first of all people have their own interest. So let them spend the money on whatever they want. But
    you know, what it does also do is it shows you, hey actually, if we were going to build the title industry and title management it might look a lot different than going to the county clerk's office and not really being sure about what is going on with the property you just bought. But I think a lot of the innovations that we're seeing in the NFT space for this idea of digitally unique assets, we're going to start to see flow into other things that we're doing. Even if it's just as a bit of a proving ground that's
    somewhat speculative today.
    SARA: So let's take that a step farther. I mean, you've both spent your careers in finance but I would say you're innovators, first and foremost. And we've talked a little bit about how these ideas might transcend just the financial industry. What are some of the non-financial applications of this kind of blockchain and distributed ledger
    technology? What are you watching for and what are you most excited about?
    GREG: I think one of the ones that I'm keeping an eye on, and I would say my excitement level on it is a mixture of excitement and anxiety, it's just around the idea of digital identity. So the idea that you can have a provable identity you can take anywhere in the world, anyone in the world could validate that it's accurate. That is something that I would expect expects becomes more prominent as you can access these open globally accessible databases. The way that gets applied, I think there's a lot of very serious ethical questions around that and what level of tracking is going to be available on these kind of things is a very serious question. But I do expect that we'll start to see more and more of that over the next few years.
    SARA: Robbie how about from your side? What potential innovations are you most excited about?
    ROBBIE: Well I think there's a lot of those applications that have been talked about, not a ton to show for it frankly. Every time that we venture into that territory, something else in finance pops up that seems to be bigger and more interesting. And I think that's kind of the case now. Again, with the emergence of DeFi which we haven't really touched on. But clearly in DeFi, a lot like in NFT space, it's inarguable that there's a ton of rampant speculation. In the case of DeFi there's this added element of a regulatory overhang that at some point is going to be figured out. But again, like in the case of NFTs, there's an underlying innovation and potential transformation there that's very powerful. So there's a lot that needs to be worked out in DeFi. But the significance of what that technology is enabling is too large to ignore.
    SARA: I want to thank you for joining me today. I learned a lot. I really appreciate you helping us explore this topic. Thank you.
    GREG: Thank you, Sarah
    ROBBIE: Thanks for having us.
    BLACKROCK DISCLOSURE
    This material is for informational purposes and is prepared by BlackRock, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of date of publication and are subject to change. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable and are not guaranteed as to accuracy or completeness. This material may contain ’forward looking’ information that is not purely historical in nature. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not indicative of current or future results. This information provided is neither tax nor legal advice and investors should consult with their own advisors before making investment decisions. The value of investments and the income from them can go down as well as up and you may not get back the amount invested. In the U.S. and Canada, this material is intended for public distribution. In the UK and Non-European Economic Area (EEA) countries: this is Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 0202039 . For your protection telephone calls are usually recorded. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock. In the European Economic Area (EEA): this is Issued by BlackRock (Netherlands) B.V. is authorised and regulated
    by the Netherlands Authority for the Financial Markets. Registered office Amstelplein 1, 1096 HA, Amsterdam, Tel: 020 – 549 5200, Tel: 31-20-549-5200. Trade Register No. 17068311 For your protection telephone calls are usually recorded. For Investors in Switzerland: This document is marketing material In Singapore, this is issued by BlackRock (Singapore) Limited (Co. registration no. 200010143N). This advertisement or publication has not been reviewed by the Monetary Authority of Singapore. In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited and has not been reviewed by the Securities
    and Futures Commission of Hong Kong. In Australia, issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFSL 230 523 (BIMAL). The material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any
    investment decision, you should assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. In Latin America: this material is for educational purposes only and does not constitute investment advice nor an
    offer or solicitation to sell or a solicitation of an offer to buy any shares of any Fund (nor shall any such shares be offered or sold to any person) in any jurisdiction in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. If any funds are mentioned or inferred to in this material, it is possible
    that some or all of the funds may not have been registered with the securities regulator of Argentina, Brazil, Chile, Colombia, Mexico, Panama, Peru, Uruguay or any other securities regulator in any Latin American country and thus might not be publicly offered within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. The provision of investment management and investment advisory services is a regulated activity in Mexico thus is subject to strict rules. For more information on  the Investment Advisory Services offered by BlackRock Mexico please refer to the Investment Services Guide available at www.blackrock.com/mx
    ©2022 BlackRock, Inc. All Rights Reserved. BLACKROCK is a registered trademark of BlackRock, Inc. All other trademarks are those of their respective owners.

Filter by:

  • All
  • SUSTAINABILITY
  • DIVERSITY
  • TECHNOLOGY