Replacing the Oxygen: How TradFi and DeFi Converge! | By The Global Money20/20 Team

Host: Foreign. Um, the book opens with a line I cannot get out of my head. You only know this oxygen when it is gone. Why on earth would you start with a phrase like that for a book? That is for bank executives.

Dhanum Nosicadou: We want to wake them up, right? I think in banking, so many executives are focused on business as usual, and business as usual is inertia. And inertia means falling asleep at the wheel and missing some of the biggest opportunities in the industry.

Host: And Scarlett, you continue on this argument by saying that the oxygen is being replaced while we're breathing. That is a very strong claim.

Scarlett Sieber: We're all about oxygen here, Effy. I don't know. We wanted to be punchy, as Don Am said, but really it is around. That transformation is not a rip and replace event. New rails are being built inside lied systems, not after they shut down. So we think about stablecoins, tokenized deposits, instant payment rails. They're running in parallel with ach, Swift and card settlement.

Host: And denim. Um, you're provocative. You say that while we're swapping the oxygen, Fraud is eating the room. Is it true?

Dhanum Nosicadou: Yeah, of course it's true. Fraud isn't just eating the room, it's eating the world. I think we can't pin down the numbers exactly, but people record fraud somewhere in the region of US$5 trillion. That's about the size of Germany. Fraud is a crime. The size that's bigger than most of the G20.

Host: Hello everybody. I am, um, your host, Steffi Pilarino. And today we'll be talking about a book that is going to be launched at Money20 20 Europe in Amsterdam. M the title of the book, the New Intersection of Money When Tradfi and Defi Converge. And today I have the honor to have two of the authors with us. My guests are Scarlet, uh, Sieber, most of Scarlett. She's the chief strategy and growth officer at Money20 20, a best selling author and a lead voice in this new book. And also with us is Dhanum Nosicadou. And if I butchered your name. Excuse me, Danum. Um, Dhanum is the content manager for Europe Money 2020 and is an old timer in financial crime and reg tech. He's been with Comply Advantage with Finagro and he also is the author of Dirty Money on Sapstack. And let's dive into the conversation. Let's start with the why. Why this book? Why now? Why? Also you're launching Scarlet, the new stage called the intersection. That means that you're signaling that this is here to stay. So why this book? Now, why this thematic.

Scarlett Sieber: What a lovely introduction, Effie. Thank you so much for doing that. And you get to be the first time that Donnam and I do this together. So it will be an exciting few minutes together here. So really actually the similar opportunity with the first book that I wrote with Sophie Jabot on embedded finance was looking at signals. And one of the things that we have at Money20 20 is unique global position where we review the content, team reviews, thousands of submissions from around the world. And we started to see a lot of signals where there was a lot of chatter out in the industry talking about these topics, the buzzword, stable coins, DeFi, etc. And with the change in regulation and administration in places like the US with the passing of the genius act, etc. We felt like we have a unique position from uh, a global lens, being an independent global lens of what's happening that we had. It was, it was our responsibility to sit here and demystify that there's a lot of data that's going on around the world around, especially for the traditional bank executives, myself being a uh, uh, former bank exec as well, they're curious, but not some of them are more advanced than others. You can look at a lot of different data points. Cornerstone did something back in January where almost 80% of boardrooms within the banks and credit unions are talking or at least thinking about Stablecoins and blockchain, etc. But very few of them are doing that. So we wanted to create this book to demystify what these concepts were, showcase real live utilization. Because again, back in my banking days, it's like when fintech first boomed, then hey, these technologies are great, but they don't have the scale. They're not going to stick around. Of course, we've seen a lot of those now go public, the Klarna's, the chimes, etc. So we really wanted to put our foot in the sand to say here's what's happening, here's why it matters and here's what you can do about it. And then to your point on the intersection, one of the things that makes us unique is that we are, we are an ecosystem play. Yes, we center on payments and banking, but the collective ecosystem of money comes together. So we feel like we wanted to bring a space where the traditional side, the incumbents can come, can learn, can grow, and those who are actively participating already in the defi world can showcase their technology, showcase what they're doing, and we can bring the defi world over because what they need is validation and credibility and, and what better place to do that than at Money 2020? So that's why we did it. And we're really excited. We started in Vegas, had some great success. We brought to Asia last month actually and Europe is next with the big launch.

Host: Wow. Fantastic. To me, all the signals that you're seeing this trend on kind of the equal footing as you saw many years ago, cashlessness, digital payments, mobile wallets, embedded finance, open banking, and now these are also earning slowly and gradually, that kind of spot in terms of trends that we are uh, seeing. I actually want to bring in a framework that I have developed or I use to understand this world and I call it the holy trinity for a tokenized world and identify three major north stars that we need to watch for this world to really become reality. One of them is what happens with blockchains, open versus permission. The second is what happens with the standards in the industry. Do we have harmonized standards or not? And the third, uh, has, the third one has really to do with where AI meets blockchain and whether the agentic economy will really meet the tokenized world. So I want to ask you both where the book stands on these topics because I think they are the big high level topics and I must say that depending on the diversity of opinions, maybe you have different opinions. Diamond, um, you can start first and talk about these topics, what you think, what the book says and maybe we can create later a scorecard and see where we stand on these topics.

Dhanum Nosicadou: Sure. I think I'll go with AI and blockchain first just because I find that one to be the really interesting one. Right. I think those are the two pillars that uh, are propping up the industry conversation at the moment. I think there's a real potential for agentic AI to use stablecoins across finance. But we need to see a lot more work done to create agentic registers and um, permissions and um, standards for how companies are going to interact them.

Host: Right.

Dhanum Nosicadou: It's not a new thing to say that companies have spent a long time protecting their businesses from bots and now their customer is essentially a bot. Right. That's what all agentic tools are. They are bots. You're going to need a register of some sort to allow those through. And I think uh, various of the payments giants are working on that. But without, and without that, you're also allowing yourself to be open to more nefarious agentic AI tools out there.

Scarlett Sieber: Can I just chime in real quick on the AI and blockchain One, because what you said, Donna, makes a lot of sense and maybe not a, but two. Two weeks ago I hosted a closed door roundtable with a bunch of regulators and banks, primarily from Asia, but not exclusively. And of the things that was quite interesting is everything that you said about the AI, uh, agents makes sense. Right? We moved from this world of trying to stop people and bots to go ahead and do more at uh, checkout to actually saying please, we need more of you because it's going to accelerate the process. However, one of the things that this group was talking about was the fact that despite that, it's quite hard. What is the role of AI in the future of banking? Basically it's, you have the output, but it's quite hard to understand the thinking and framing, what data points were actually pulled to get to this result. And every now and then they'll do one link to an article or whatever else, but collectively you don't know how the thinking got there. What's really interesting to me about the convergence, we're going to use that word because we love buzzwords of the AI and blockchain coming together is blockchain then allows us enable us to track it and to trace it. So to me that is the most exciting overlap of these two technologies is one is doing the deep analysis, the predictions, et cetera, putting out the throughputs, whereas blockchain is there to trace it and make it trackable. So the two of them really fit very nicely together in my mind.

Host: So does the book talk a lot about this tug of war between open and permissioned and give a sense of where we are at and where we should go?

Scarlett Sieber: Definitely. So Don, I'm sorry, this isn't problem. I can't be quiet. I'll be quiet in a second. Go back over to you. But for sure, we talked a lot about that in chapter four in particular around picking the right blockchain. And one of the things for us is we really wanted to reject what is the right thing and, and talk about the opportunities and challenges of each respective path. So permission chains, they really dominate when there's fiduciary duty, regulatory supervision, balance sheet, like when that risk is there, that that part matters and that's where permission makes a lot of sense and public chains dominate, where distribution and the ability to do that at scale matters a lot more. Of course, because we want to make sure. You mentioned the beginning Effie, but we had a representation from pretty much all over the globe and one of the things that we want to talk about was the differences and similarities across regions. So Europe is already running on a hybrid model of this now with controlled banking environments kind of interfacing with the public rails, the regulated access points. But I'll shut up and give it over to Donald.

Dhanum Nosicadou: No, yeah, always hear from you, Scott. I was going to say on the permission, on the standards part of things, the harmonization. That's something that I find to be a really interesting question generally because I'd argue we don't even have that for fiat money right now anyway.

Host: So we're actually so true after so many years in the everywhere in payments and in capital markets too, right?

Dhanum Nosicadou: Exactly.

Host: We can't even agree about the definition of what a security is.

Dhanum Nosicadou: Exactly. Which is why you have such different approaches all over the world. In a lot of ways blockchain and stablecoins are uh, light years ahead of fiat money by having these ERC standards coming in which seem to be agreed on the whole by a lot of private enterprise and uh, people who are building in the space.

Host: Yes. And even with for agents we're having the ERC 8004 standard for agentic identity. So there are standards there.

Dhanum Nosicadou: Yeah, exactly. I will add we had, like Scarlett said, we had experts from all over the world coming in to write this book. Our uh, standards expert is a man called Ian Fong who is brilliant. He's on the book as well. He wrote all of our standards stuff. He's a much better positioned person to answer that. But unfortunately he's not on the call today.

Host: One of the other favorite, if you want phrases from the book is this missing money problem that you reference which by the way brought to mind the global financial crisis of 2008 where banks, I'm talking big banks, major banks like Goldman, they were just scrambling to calculate their counterparty exposure. It took them days. So my question to you is, do you think that blockchain rails and defi can solve this problem? You already referenced the transparency, the auditability, but really does it have the potential uh, to offer better risk management for institutions and better supervision or is it only about your own real time flow of money?

Dhanum Nosicadou: I would say that there is no magic bullet uh, ever, uh, in finance. It's going to be an issue of trade offs and beyond all of that. It's going to be an issue of. It solves certain things.

Scarlett Sieber: Right.

Dhanum Nosicadou: It's going to solve part of that. So it's going to give you fingerprinting like Scarlett said. It's going to give you greater risk management. But is it going to solve your counterparty exposure mathematics overnight? Probably not. It's probably going to give you a much better insight but only for a portion of your business. There's an element here of how much adoption is going to take place and it's going to be a while before your big banks like Goldman are going to have full adoption of stablecoins. They're still going to want to use fiat money for a lot of things as ah, they should because they should be risk averse on the whole. But it's about gradual adoption and um, an ever moving target of uh, moving towards greater responsibility when it comes to understanding your exposure, understanding how much money you have and how much risk you're really open to.

Scarlett Sieber: Yeah, yeah, I would just, I would just add to that for a second because I think it's very valid. And one of the things to your point Effie, making a reference back to the 2008 crisis, institutions couldn't locate risk exposure fast enough to stop what ended up happening. And what we talk about in the book is really that while today's systems move faster the, the visibility hasn't caught up. So it part uh of it is around the technologies to enable this to happen. We still have the other fun buzzword of course that everyone's talking about is interoperability and the ability to move between systems. Technology is only a piece of it. And it's also about the role of regulation for some of this as well because you can't have real time visibility if the governance around it doesn't require actors to act on it. So it is one of those things and we had a lot of internal debates in the room. There's a whiteboard right next to me now he did a lot of whiteboarding around what is the right amount of regulation because you don't want to have a bunch of people doing whatever they want like heyday, but also you don't want to overly regulate it because then you can slow the encycle the ability to make things happen. So where is that kind of nirvana and sweet spot in between? So to me the missing money problem is yes, about fighting out things faster to the point of blockchains, et cetera, et cetera to trace things, that's great. But if you still have a bunch of different systems who aren't talking to each other, it doesn't fly fully solve the problems. If some of it's on the public blockchain, some of it's on the private, you're still having this issue. So to me it is about reducing fragmentation and of course the role of regulation, which is the thing that tends to move a little bit slower. So those are the two things that will really help us to solve the missing money problem.

Host: Yes. Another provocation that you bring up in the book is this topic of tokens that are native tokens versus tokens that are wrapped tokens. I personally like to think of wrapped tokens as pseudo transformation. But uh, this is the current reality and the question to you guys is are we going to get stuck in this wrapper mode? Do you see that we will get there to real native on chain assets, be it fixed income, be it stocks, be it whatever, other real world assets, but mainly we have to start with the existing ones instead of being issued in the traditional way to start being issued on chain. What do you think about this? Where are we and where do you think we're going?

Scarlett Sieber: So I think it's a good question, Effie. And one of the things too, like back to the tradfi and where the world is going, if you think about the role that wrapped tokens play, they make legacy assets move faster, which is important, but they don't and they don't change who controls the settlement, the governance, etc. Whereas with tokenized issuance that gives compliance ownership transfer rules to embedded, that's embedded directly in the asset. The thing that we posed at the end is you want it, you have to crawl before you walk, before you run. Right? So on the one hand it is helpful and these token like these wrapped tokens help on the acceleration of adoption. However, our question that we pose to the audience is over time, do they end up becoming a bottleneck to the native issuance? Because people get quite comfortable on this plane and then it becomes harder to move there, especially as we scale. So we don't give a direct opinion. I'm sure Donna has one, which he might be happy to share, but we don't give a direct opinion. In the book we more pose questions back to say here's what's, here's how wrap tokens are being used today. Here are the opportunities and challenges here. Here's where the native issuance lies, here's all of the positive sides of that, but here's where we're seeing a bit, uh, of friction basically. But I'm curious Donna, what you think?

Dhanum Nosicadou: I think those are all very valid points and we do agree to them in the book. I think there's a huge part of this which people are missing, which is around whether or not these networks are set up for payments at uh, volume and at speed and in fiat money you have I think around 20, 25,000 transactions per second. Possible with the some payment networks, uh, at your native tokens like your Bitcoin, your Ethereum I think they barely break a few hundred. Bitcoin is around 7 per second. Ethereum I think tops out around 150. But then you have the Solana network which allows more wrapped token issuance and movement where I read the theoretical limit is 65,000. I don't know if it's ever hit that. But there is potential for these wrapped tokens to move assets really fast and at volume and at scale that matters in a way where it's almost, I think some of the technology is already there and it's waiting for the behavior to catch up.

Host: Interesting, interesting. Let's talk about something that's more. Now this issue of stable coins versus tokenized deposits. Are tokenized deposits going to take over the big part of the institutional volume? And quite frankly there's a uh, regulatory advantage or there's an AML advantage to tokenized deposits because it's already within the regulated banks. What does this asymmetry mean? How do you see this developing? Does the book touch on this? Uh, which is an emerging, if you want competition and it might vary by jurisdiction and then I guess tied to that is because the book is really a very global uh, book. It's not only the usual. We typically talk about US and its regulatory framework and the EU and its regulatory framework and maybe Singapore. But here there's uh, the MENA region, there's Africa. You have all the regions. What did you learn from looking at these regions? I guess these maybe uh, connected these two questions.

Scarlett Sieber: What I'd say is so very good question, very big questions. Uh, and I think Don can probably speak a bit further to the stablecoin tokenized deposits thing. To your original point though, Effie, you can see, not surprisingly that because of the way the tokenized deposits are operating now, the traditional incumbents are going to be favoring them a bit more. Although we are seeing quite strong adoption on the stablecoin side as well. And what's so interesting about it is that global settlement layer, which again goes back to optimization for speed, dollar access and cross border flow. And there's certain markets that we think there's going to be stronger penetration than others. And we talk about that a bit in the book, but it really depends. I think for this broader defy conversation, it's not necessarily a winner takes all and there's opportunities for both. In terms of your question around of Lessons learned and things like that. So we talked a lot about what's happening in Asia and specifically in Southeast Asia. And we talked about things like coins, Ph who we just saw him two weeks ago in, in Bangkok and what the Central bank of Philippines is doing with them to talk about these digital currencies. And then Project Umbridge which again was primarily uh, a uh, Southeast Asia project, but actually now places in the Middle east and Saudi even is taking a part of this conversation and it's moved off of the BIS and kind of led by the local regulators. So there is. What's so interesting is for a while especially ignore all the technology. Just back in the day banks were competing I think back when I was like involved in the first R3 when I was a banker 15 years ago. And we had three Japanese banks in the program together, which would never happen. They're usually so much about competition. But for this stuff to scale and grow, there is a lot more of overlap and different. Not only banks within one region, but uh, like governments across regions working together. And that's really what we start highlighting the book is that the way that this like the only way that this truly scales is if different parts of the world, different governments, different financial institutions start working together to really see scale. And we have some good examples of that. Project Karina that was a partnership with Kaiser Corn bank, which is second largest bank, Thailand and JPM to really bring that cross border for their, for their corporate customers. And they had one or two specific use cases that created the entire technology because they had two big customers who want to move money between the banks across borders. And it's continued to grow and scale. And the CEO just talk. Katya just talked about that as well. So that's. We're certainly seeing that happen more and more. But Don, am I. I stole your light again. I'm so sorry.

Host: Uh, I'm sure that you have a lot of examples that will help. I think in the developed world, developed world, the Americas and Europe, we tend to be very focused on our own region and not knowing what is happening around the world, around this and how global this phenomenon can become suddenly just because there's a lot of scattered building but very powerful because as you said a lot of it is done in consortia, in groups. That is not done otherwise you don't see it for other reasons. I uh, think it will be really helpful for a lot of business people to understand and it's not only the financial services providers because this will change economic activity will affect businesses, how they run Their treasuries, how they manage their liquidity, any kind of business. So I think it's a very important phenomenon if you want trend that everybody needs to understand.

Scarlett Sieber: But yeah, and you know the interesting point about that and we spent a lot of time focusing on this in the book because, and Donna will know this because it's one of my favorite sayings but context is really important because it's so easy to think about the solution or you hear the trends but what is the why is this the case? And so what we spent a lot of time talking about basically the evolution of these technologies in each respective geography. Whereas to your point in the markets like Europe and the US this was more of a uh, we, we wanted more speed, more flexibility etc whereas in Latam or Southeast Asia this was a necessity. This was not a uh, nice to have. This was born out of real problems that they're struggling with every single day. Fluctuations in currency where you know, you know, one day their, the, their peso is worth X, the next day it's worth Y. So this was really born out of fundamental needs for different parts of the world which is why we've actually seen the adoption in different ways where in those cases regulation had to catch up because the people needed it. And so we really spent a lot of time breaking down the impacts and the why for each respective geo and then pull in the how, what the role that regulation plays and where some of the players are that are having more competitive advantage or more traction.

Dhanum Nosicadou: Basically I just wanted to add, I want to go back to the who wins between stablecoins and tokenized deposit things which is, I don't believe in winners and losers in that sense. I think there's space for both of them. So tokenized deposits obviously huge value there in terms of how institutional volume is transacted and also how it's moved internally. But stablecoins solve a completely different use case essentially which is speed of money across GEOs is a huge way to do that. And then to your point Scarlett, around the various jurisdictions. Yeah in Latam it was done partially because there was a need majorly because there was a need from consumers and from people, but also because building that level of infrastructure in our digital space, way cheaper and easier than creating from scratch internally in an analog setting. And we see that across the world in developing markets like you see that a lot in Africa where people love to talk about the technological leapfrog, how people went from essentially cash to digital transactions with no in between, that's a huge deal. But that's because they're investing not just in solving the problem of today, and right now they're solving the problem today, but also the problem 30 years from now. I think we see a huge amount of that. We talk about that in a bit in the book about the future proofing of some of this technology. And then equally, you have Asia, which I would argue is maybe significantly further ahead in areas compared to the US and Europe when it comes to this sort of technology adoption.

Host: Yeah. You are actually six authors in the book covering, as you said, the Americas, latam Europe, the MENA region, Asia. Before we close, I want to ask you, this must have been a major orchestration without the AI agents, six humans coordinating on a topic that is very rich, evolving. And maybe there's disagreements too, as to where we're going. Is there anything anecdotal that you would like to share in terms of disagreements in putting this book together?

Dhanum Nosicadou: Yeah, for me, first off, Scarlett said, come to New York and write a book. And I was like, yeah, I'll take a free trip to New York. I didn't realize it was going to be locked in a room the entire time. It was great room, great people. Uh, but it was also minus 25 degrees, which. Not the greatest New York holiday I could have, but no, it was a great time. We had lots of discussions. I think the first day and a half or so, we were just throwing ideas out and ripping them apart across each other. But Money 20 20, we've got a great team and everyone really respects each other's opinions, and there's a lot of input from different people and we respect everyone's local and regional knowledge. I remember speaking with Kinger, who was our MENA expert, and I said to alert, this is just my general understanding of the Middle east region. And she came and was like, nope, that's all wrong, and basically rewrote it for us. And that was great because this is a huge industry. It's a huge topic. On top of this huge industry, it's impossible for any one person to know the entire world in depth. And that's why we brought together a really great team from across the world.

Scarlett Sieber: Yeah. I would just add we mentioned the standard piece earlier with Ian Fong. He definitely is more of the professorial type, and it's very, very specific and detailed and almost theatrical in the way that. That he writes. And he and I got in a bit of a piece. I was the only American in the room, so I was writing some piece about how advanced we've gotten and he went. We had to go and correct each other's chapters. And he was actually Scarlett. I think that Asia is leading in all of these key areas. So there was a lot of pieces like that, which I think was quite interesting. Yes. I did trap them in a room. They had food and water and it wasn't like that. We had nice dinners, but for a full week. And we also did have a facilitator to help kind of steer the conversation. But one of the things that was important was how do we take each of our respective. Not only GEO expertise, but also we talked about Ian with standards and Donna, uh, with fraud. And then for me, because I try to be a storyteller and this is my second book, I wanted to make sure that the tone was the right tone. And so even how you started the conversation, Effie, with quite bold subjects and titles for the different chapters, those were Donna, because he's the bold one. And I loved the way that he phrased things and it caught people's attention. Because sometimes when you read these books, they can be quite dense. We try to make them fun with a lot of personality, some great images, etc. Where it's not something that you feel like you have to do. You actually enjoy getting through it. So we put some jokes in there and things like that. And that was definitely Don's personality through and through. But yes, we got a bit of debates on who's leading, who's not. We don't. We haven't covered this enough. Why haven't we talked more about that? Actually, that's not really that important compared to this. So, you know, there was a. I was trying not to be the boss in the room and just be one of the. One of the writers, which was challenging, but I stepped outside a few times and let them go. And I'm very proud of what they've done and what we've done and it's. We're excited for the world to see it.

Host: And you're all excited, I'm sure. I'm excited too, for the launch in Amsterdam. It's the second day at, ah, of course, the intersection stage. And, uh, we all look forward to be there and celebrate this and of course have great discussions on this topic. Thank you for joining me today.