When Money Goes On-Chain: The Bank's Role in the New Financial Infrastructure

Speaker A: Foreign.

Speaker B: Welcome, um, to another episode of FinTech Corner. I'm Brett Turner, founder and CEO of Truvada. We're excited to continue this series on stablecoins. We've got another great episode for you. We've got a fantastic guest. Uh, before we kind of go there to get this whole series is really talking about what is it going to take for stablecoins to go mainstream in corporate finance and corporate treasury. If you think of a little bit of this, this journey that we've been on started a year ago and it was really about all the need for all these use cases for stablecoins and how they're going to start to really take off knowing that a lot of it today is just into trading. So we've, we've kicked off this journey here to not only talk a little bit about what we've discovered and what we've learned and what we're doing and how that's being applied here at Trvada, but we're all learning together and we wanted to bring a lot of these voices together because so much is going on, so much is changing. And so maybe I'll unpack that a little bit. But I definitely wanted to introduce. We have Nader Sori, who's the global head of corporate and digital banking at bny. Uh, excited to kind of dig in with you. Um, we also have our very own Paul Bansis, who is a crypto expert in his own right. He's part of Terada, just leading our efforts on the stablecoin digital asset side. When we say stablecoin, we also mean tokenized, uh, deposits and deposit tokens. Uh, we work with a lot of banks and so we uh, can use stablecoins, we can work with, uh, tokenized deposits that are going to be all, uh, happening as well. So it's exciting time. All of this is starting to converge. And so we'll let Nader introduce himself. Paul again, expert in his own right. I have to say this because he's too modest. He might not say this himself. He co founded PyUSD, one of the leading stablecoins, uh, within PayPal, a part of a regulatory push and also had part of Paxos and really part of putting this together and what we've put together, uh, in with Terada, of how now all of this is moving into corporate finance and corporate treasury. And so before I turn it over to Paul, I'm just going to unpack a little bit, uh, of what's going on too, from the landscape perspective because things are moving really Fast. So if you think we're in this massive glacial shift where we estimate about $10 trillion in corporate operating deposits, that's not investment, excess cash, that's operating deposits. That's globally at all banks on the corporate side, commercial banking, that is, that 10 trillion is going to be shifting toward tokenized deposits. Some may be stable coins. So all of that whole shift, at the end of the day, banks are moving toward tokenized deposits, deposit tokens, if it's consortium. Uh, but where are those going to live? How are they going to be consumed? They've got to be consumable or in a way that corporate finance and corporate treasury can use them. So in a corporate or governed access layer, security, internal controls, your treasury policy, all these things matter. If they're going to be utilized within all of the workflows and therefore be innovative and leverage, their innovation is going to happen through utility. Uh, it's not about yield on the corporate side. We've talked a little bit about that. It's more around liquidity. And the use of these tokens, especially as they pair with agents, is a very powerful combination. And it's going to lead to a lot of automation. And so everything is kind of shifting digital, everything is shifting toward data and everything is shifting toward automation with AI, the compelling event, tokenization, digital assets, stable coins, tokenized deposits, the other compelling event. So these two drivers, they're converging, they're teaming up, and it's really accelerating and getting really exciting. So I hope you're learning a lot from this, because we're learning. I think part of this is that it's not just about, hey, we're sharing with you with what we've learned here at Truvada, but we're, we're still learning. Uh, yeah, we've learned a lot. We want to share with that, our thoughts on that. But still, there's a crypto industry. They still don't quite understand a lot about the corporate finance and corporate treasury side, or even the banking and regulatory side. And a lot of it is largely consumer or retail banking. And then you have the banking side, who doesn't really understand as much on the crypto side and still even trying to solve pain points for their, uh, corporate treasury customers. And so you got these three camps. And as these camps start to converge, we also want to bring these voices out, voices from the banking side, voices from the crypto side, and then really talk about how this is all going to be applied. And hopefully you're learning along the way. We are, we're learning in these conversations that we're doing real time as well. We're asking real questions, not because we just want to answer ask questions, but because we want to know the answers of them as well. And, and we want to hear these voices we're learning as we go. So we're all in this together. We're all learning together, and it's a really exciting feature of where this is all going.

Speaker C: Fantastic. Thank, uh, you, Brett. I, uh, have to admit I've been very excited about, uh, this particular episode of the podcast. Nader, it's great to have you on. If maybe we can start off with, uh, an introduction and a little bit about your background, please.

Speaker A: Thanks so much, Paul. Really excited to be here. Nader Suri. I lead our coverage practice in digital and corporate banking at bny. Uh, for those who don't, BNY is the, uh, world's largest custodian, a big payments bank, a, uh, big investment manager. Really excited to talk through this topic today.

Speaker C: Fantastic, man. We always like to start here. Our podcast was sort of an origin story, and I'm not sure if you recall, but, you know, you and I have known each other for several years, and we originally bonded over, uh, the Beastie Boys documentary. I don't know if you remember that. That came out, um, on Apple TV back in 2020, right around the time of the lockdown. Do you remember that?

Speaker A: Oh, absolutely. Uh, bonded over Beastie Boys. I remember I was, like, walking through Brooklyn talking to you about it, and you're like, you kind of look like you're in a Beastie Boys video right now. Uh, so that was cool.

Speaker C: That was exactly right. Yeah. Wonderful to have you on. As I said, I've known you for quite some time, at least back since 2020, and you've always been an early advocate and an early believer in blockchain digital assets and tokenization for banking and financial services in general. Certainly way before we, uh, had the sort of favorable environment we have now and by has done some very interesting things in the space, and we definitely want to discuss that today. But I really want to go back to the early days. Right. So I want to go back to how did you go about wounding the hearts and minds and the stakeholders over at bny, and how did you build that internal use case to get BNY not only to look in the space, but really kind of play a role at the forefront over the last couple of years?

Speaker A: It's a great question. Like, you're absolutely right. It has not been an easy road. Uh, if you Go back six, seven years. The origin story around, you know, how BNY got involved in stablecoins. I think, I think let's go back to who we are as a company. World's largest custodian, one of the largest payment banks in the world. We provide white labeled payment services to other financial institutions. We're a large Investment Manager, over 2 trillion of assets under management. We're at the core of uh, what's happening in the capital markets, whether it's um, being a collateral manager, whether it's clearing Treasuries and so you know, a real market infrastructure bank that's core to the functioning of the global capital markets. When we saw what was happening with stablecoins, which in many respects is just another new payment rail, it was quite obvious that because we're a big payments bank we should get involved. But also those services I just laid out are the perfect pieces of the infrastructure to support emerging stablecoins. And so the initial project was uh, the now defunct uh, Libra stablecoin project. But it led to our public relationships with, with Circle and others. And it was really because those regulated players in the stablecoin space wanted a highly regulated and trusted infrastructure bank to support their activities. And so listen, to win the hearts and minds at bny, it was in tandem and in partnership with what makes us one of the most trusted financial institutions in the world. It's in tandem with the control teams, with compliance with legal and really bringing them on the journey to uncover what was really a new asset class for us to service and manage, but also to really understand how this affects the future of the capital markets and how we can be at uh, the core of it.

Speaker C: That's fantastic. No, and I was at PayPal and PayPal was also one of the original members back in Libra, back in the day. What do you think then has changed from those early days till now? What makes this moment for stablecoins, tokenization, et cetera, different than what we've seen in the past? What do you think is the catalyst that we're now seeing? Almost every financial institution hiring folks to come in to look at strategy, Building out pilot programs or actually just diving in and launching new products and services for their customers.

Speaker A: Yeah, I mean, listen, so, so I think it's like a few things that have happened. Obviously number one is more clarity around the regulatory environment. I think like it's, it's still an evolving story but we do have the Genius Act. It's established a federal framework for payment stablecoins that gives institutions a Much clearer basis for deciding how to and whether they participate. So big corporates, which we cover, Fortune 500 corporates, um, all of a sudden now have to understand how to potentially support this new payment rail. Secondly, I think the use cases are becoming clear. There are products and offerings that actually solve real problems. So tokenized money market funds, uh, as an example, clients actually see value in making, you know, high quality liquid assets easier to transfer, easier to use as collateral, and potentially moving them and accessing them outside of traditional market hours. That's now a real use case versus just being somewhere you park cash after you've done some crypto trading. And then I think, uh, you know, institutional infrastructure is catching up. So banks, custodians, asset managers, they're all building production capabilities around custody settlement payments. You have the changes in regulation, you have the changes in the actual use case, and then the infrastructure which is driving institutional demand. And I think, you know, all these things are happening right now.

Speaker C: Yeah, it's interesting that you say that, uh, and I do want to go back to custody because if I recall, that was one of the first areas that the bank jumped into. But before that I always like to ask this question of people on the banking side, like how much was the motivation, fear of getting disintermediated and sort of like trying to find now. Well, as opposed to that, let's figure out what the role should be of the bank in a regulated infrastructure that's connecting sort of that traditional financial services with this new digital ecosystem.

Speaker A: I don't think, uh, it was a fear factor for us. I mean, listen, BNY is an interesting institution in the sense that we serve other institutions. We don't have a retail business, we don't have a commercial banking enterprise. We're solely focused on servicing our institutional clients and what they demand. And so the reality is, when we built digital asset custody and we were uh, one of the first global, systemically important financial institutions to do so, that was responding to client demand for that capability. It wasn't out of fear. And I think we take, and I personally take a view that uh, it's not a zero sum game. So like digital asset custody at BNY actually sits side by side with the traditional custody platform. And so when you're a customer of BNY and you're going to use digital asset custody and traditional custody, you're seeing it all in one place. It really doesn't change the experience for you. Um, and so I do think, like for us it's all about providing optionality to our clients. To enable them to enter new asset classes or enable new payment rails. And that could be even outside of crypto. I mean, we've seen the flourishing of private credit and private assets and we've been at the forefront of that too. So to us it's all about meeting institutional client demand. Great.

Speaker C: So, and you mentioned, uh, as we said that you. I think the first major announcement was on the custody side, if I remember correctly. But kind of walk me through sort of that evolution. So you started with custody and then, you know what, what came next? Where did you see those opportunities and how did you build that portfolio of services to address those client needs?

Speaker A: Yeah, so, so we started with custody because it really is the absolute foundational aspect. So we can, we can custody digital assets within the same institutional environment like I just touched upon. We've always, number two, been interested in stablecoins because I hear this term a lot. It really is the super app of the blockchain world. And so we've always been focused on actually providing the underlying fiat, uh, infrastructure of stablecoins. But how that's evolved now is actually we recently announced, uh, with Circle, uh, the ability for our clients to hold usdc, uh, right on our digital asset custody platform and they can instruct minting and burning through bny. So that's a first evolution. And then on tokenization, we announced the launch of our digital transfer agency capabilities, which we're already on the traditional side, a large transfer agent, and this extends it to digitally native, uh, funds. And so what really is happening is an expansion of the same architecture that we've had on the traditional side, but taking it to a more upgraded technology blockchain. And so that means more, more digital assets, more networks, more mobility and, and, and deeper interoperability. I think the end state is it's not a separate digital asset stack. The goal is for our digital and traditional assets to work together in the same financial operating model.

Speaker C: That's fantastic. As you know, I've worked with some financial institutions and providing some consulting services to. That's exactly right. You can't build this on the outside. It has to be part of the entire sort of holistic view that the customer has. Speaking of your announcements and product launches, uh, you had a very interesting one back In August, uh, August 4th, I think it was, that you announced a partnership with Galaxy Digital, which we all know, uh, pretty well. Uh, can you tell us a little bit about that, please?

Speaker A: That was a great announcement because again, it just showcases the evolution, what we provide on the traditional side to the Digital side for us, like staking does matter to institutional investors. And so as the digital asset market matures, clients are increasingly expecting uh, more than simply the ability to buy and hold an asset. And so staking is a really important part of the economic utility of a digital asset itself. It allows holders to participate in securing the network and in return, uh, they earn rewards. It's not too dissimilar from uh, on the traditional side. Uh, we are one of the largest securities lenders in the market. And so that's where Galaxy came in. There's a great partner, we're working with them to integrate their staking capabilities right onto our platform. They bring in the expertise, uh, that they've, that they've built. So again like you're seeing the evolution with partners of us becoming uh, a once stop shop for our clients. And so. Right, so custody now is not just simply holding it, but it's actually putting your asset to work.

Speaker C: All right, so you've mentioned custody now, you mentioned staking and other things that can cause regulators uh, to ask some questions. And when we were at PayPal and we were launching PyUSD, the stablecoin, a big part of the job was going out and speaking to the regulators both domestically and internationally, uh, because they wanted to understand what we were doing, they wanted to understand the risk. Because obviously, obviously PayPal is a regulated institution. Obviously BNY is. Tell me a little bit about uh, that regulatory journey for you guys because I would imagine that again today we kind of forget 2, 3 years ago what the conversations were like. Uh, and I think now folks have become a bit more educated on the technology and on the use cases. But tell me a little bit about what that looks like for an institution like BNY to sit in front of regulators and explain not only what you're trying to do, but why you're trying to do it.

Speaker A: I think the really important point about that question is you actually have to sit down with regulators and you have to sit in front of them and you have to bring them on the journey of uh, responsible innovation with you. And so for us, and this has always been the case, no matter what, what topic we engage our regulators on, they are partners with us on this journey and they are partners with us on the journey of responsible innovation in financial services. Because you don't want innovation to come out of a world where the regulators don't have a say, uh, where they're not viewing what's happening, you want them to be part of it. And I think that's what made BNY an early adopter, but in a trusted and regulated way. We did it in partnership and in tandem, um, with the regulators and yeah, environments change. And so we're in the business of always being ready for any environments that we have to operate in. Always with the perspective of serving our clients, but doing it in partnership with uh, the regulators that oversee us.

Speaker C: Interesting. So you've used the word partnership several times. So I want to ask this question because, um, as I said before, in my opinion, and I think in most people's opinion, BNY has kind of been at the forefront from a banking perspective in this space. But you're also starting to see a lot of collaboration amongst banks and they're starting to explore, uh, whether there should be some sort of network within the banks for tokenized deposits or deposit tokens. And then some banks are really again, uh, like BNY is taking a step forward individually or independently of some of those networks and groups. What are your thoughts there? Because we have a tendency, I think you said it earlier as well, we have a tendency in the industry to put A versus B stable coins versus tokenized deposits or back in the day Bitcoin versus Ethereum or X versus yeah, and I think a lot of folks continue to do that. Should it be a consortium network approach? Should it be just bank doing it individually? What are your thoughts on that and how do you go about addressing or evaluating those opportunities within the bank?

Speaker A: I'm firmly in the coexistence camp here of the whole kind of stable coins versus tokenized deposits versus tokenized money market funds. All these things solve sometimes overlapping problems, but they're economically and legally different instruments. Like a tokenized deposit is still a bank deposit represented on a digital infrastructure. A stablecoin is issued under a totally different legal structure and backed by reserves like those Differences matter. They matter for balance sheets, they matter for regulation, they matter for liquidity, and they matter for how institutions use them. I can see for example, like uh, our corporate treasurer who wants to accept a stablecoin because perhaps a vendor wants to pay them in a stablecoin and now all of a sudden they accept that stablecoin, but then they want to convert it into something yield bearing. Perhaps they can do that with bank deposits, you know, that uh, on a digital form. Or perhaps they want to use a tokenized money market fund and perhaps they use both all in the same day. That's not too different actually from what a corporate treasurer does today. A corporate treasurer takes in a payment via ACH or wire and then they invest it per their investment policy statement, which is either in a deposit in a money fund or maybe they're buying Treasuries or other short term fixed income assets. So again, I think it's not a question of which instruments is going to win. It's. Yeah, I think I said this before, it's not really a zero sum game. It's an evolution of the instruments that are available to clients today. And so that could be because you have a particular relationship with a bank, you may want to go into a tokenized deposit, or perhaps your investment policy statement states you should only be an X kind of money fund, then you have a tokenized version of that as well.

Speaker C: That makes a lot of sense. Like you said, it's not a zero sum game. And I say this to folks all the time, it's way too early to start picking winners and losers in the space. We have no idea how things are going to evolve. When you and I first started looking at stablecoins again, it was a trading use case to uh, go in and out of volatile currencies and it was 4 billion in market cap and now over 300. Let's go back to that corporate treasury, uh, because you mentioned it a couple of times, there's certainly a lot of excitement about digital assets and tokenization and corporate treasury. But what do you think are sort of the biggest barriers today that are sort of preventing those digital assets and tokenized money from becoming part of everyday corporate corporate treasury? Is it the regulation, no pun intended. Do we still need clarity on uh, what the regulation is going to be? Is it the technology? Is it just education? Um, is it the other tools that they need for risk compliance? How do you view this in terms of what does the industry need to start really getting adoption at scale On a corporate treasury standpoint?

Speaker A: I will use the term that you use, which is it's still early days, but a couple of barriers are just like natural when it is early, early days. So. So number one, it is about ubiquity. So naturally right now corporate treasury is thinking, okay, we're getting more regulatory clarity now I have to think about what stablecoin do I accept? Uh, who is it issued by? Is it federally regulated issuer? Who, who's going to help me support like that enablement of stablecoin acceptance and disbursement? Is it a bank? Is it not a bank? Is it someone I trust? And so these are complicated questions actually. And so that's why we really strive to make it easy for clients to figure that out. Like the Infrastructure is available through digital asset custody. We're obviously a bank that's well known to many corporates around the world. And then like you have tokenized options as well. That is one barrier. There's the ubiquity. Is it there? And then once it's there now I have to set up like a new infrastructure, sort of. And so that's one. I think regulation is helping. So I don't think like that's a true barrier at all. I think the final one is how does this all connect with like the existing systems, the existing treasury management systems, the ERP systems, the bank accounts you have, the liquidity policies we just talked about, like the investment policy statements and tokenized money market funds. Just saying, like, yeah, here's a wallet. It doesn't solve any of the problems that a corporate treasurer has. What they really need is deep integration of that wallet into their existing platforms that make things work today. I think, like, that is going to be an evolving story, but it's certainly a barrier today.

Speaker C: And obviously here at Truvada, trying to solve those problems for corporate treasurers. We used to say this, Even back at PayPal, you can't build something that's outside, like a speedboat outside the carrier. You got to build it as part of the carrier. Because if you, you force folks to adopt new policies or new procedures outside of what they're traditionally doing for their cash management and treasury, it's not going to work. You can't expect folks to upend everything that they're doing. It has to fit holistically into what they're doing today. So I definitely agree with you on that viewpoint. You mentioned these stable coins and issuers and all of that. So now I'm going to ask you, uh, forget your, your bny and just talk to me as the expert that you are, that I've admired for several years. I often refer to this time now as you're going to see a renaissance period of stablecoins. Everybody is going to launch their independent stable coins, uh, for whatever their motivation is, whether it's because the, uh, underlying economics or whether they believe they want to make a proprietary coin because of their brand. Obviously that comes with a lot of risk, as you said, a lack of interoperability or a lack of, uh, sort of liquidity for each. Then you're creating sort of these walled gardens that we've had in the fintech side, for example, for several years. Your own personal opinion on this. Where do you think all of this lands? Do you see a world where it's one or two stable coins are going to go on a long enough timeline, uh, with a couple of others that are niche or, or is there some sort of clearing house in between. How do you think this whole uh, sort of ecosystem evolves in the next couple of years?

Speaker A: It's an awesome question and honestly I wish I had the answer Paul, because. No, no, I mean, I mean listen, it all in all candor, I think there's obviously a couple of stable coins already that have developed the trust of the market and that have built out the regulatory requisites to be trusted. I think that's just they were early, they built scale, they're trusted and you can continue to see them evolve and grow. I think you're already seeing like other consortiums and we were part of uh, the Open Standard consortium, we were listed there publicly because we do think like there is going to be new stable coins out there that offer a different use case and offer a different value for its end, um, users and I think that's good. Competition is healthy, competition is good for the market and I think it's good for us to be part of that. Uh, I think you will see one or two other big projects and honestly it doesn't preclude others from issuing. I do think though that it's important and this is applicable to anyone running a business that you really focus on your core capabilities. And so for like non financial corporates to suddenly want to issue their own money sounds a little strange and I think it detracts from their core principles. However, can they be part of and use a stable coin as part of a consortium or as part of another mechanism then yes, absolutely. And if it offers value to their end business then great. I don't mean to be this like the truth is somewhere in the middle kind of guy but, but I think in this case that's true.

Speaker C: I think you're right and I think people underestimate sort of the effort that comes after you issue a stablecoin. The issuance is actually quite easy now. The technology is sound and we've seen that over and over again. But again back at PayPal, once we issued, then the real job started which was building out the ecosystem support, the liquidity, the on and off ramps, uh, all of that. And I think people underestimate how much time and effort it takes to be able to build that, that sort of ecosystem support.

Speaker A: Well, we could do a whole podcast of you telling us how much effort it took on that front.

Speaker C: Yeah, yeah, yeah, no, definitely. So going back Again, uh, on your personal side. So what excites you about the next couple of years here? What are the trends that you're seeing that say I'm in the right place at the right time and it's exciting for me to work in this space? What are the trends that you think do have the potential of really transforming or evolving financial services as a whole?

Speaker A: It is an exciting time. I think, like, number one. At bny, we've been serving corporate treasury and large corporations for years. We operate, you know, one of the largest investment portals in the world, Liquidity Direct, and it offers corporate treasurers the opportunity to invest their excess cash. And I think the evolving nature of tokenization is going to make that platform much more profound for corporate treasurers who now can actually think about receiving money in one geography and converting it in a 247 format. I think we don't talk about this enough. I think that's, m going to be like a really powerful, uh, tool for large multinational corporate treasures. And then I think the other thing that excites me is, um, the ability to move collateral at a faster pace. I mean, it just unlocks an incredible amount of value and economic value that sometimes is trapped. What it does to trade finance is like another evolving story. But finally, on the personal front, like, listen, I think the ability to send and receive money, even on an individual basis, cheaper, faster, offers enormous value to society. Agreed. And, and that, that I think, like, for anyone, uh, who's ever had to send money overseas. And yes, like, there are good platforms that do this, but anyone that needs to send money to someone in need or someone overseas, I mean, this is a great development, uh, for the interconnectedness of the world and people sending and receiving economic value to each other.

Speaker C: Yeah, couldn't agree more. You and I have very similar viewpoints on that and sort of the fundamental aspect of being able to provide for family and friends and the possibility of this technology for financial inclusion. I'm also excited about that, uh, as well. Uh, Nader, thank you very much. Appreciate you being on. This has been fantastic. Lovely to get a banker's perspective, especially one like you that's been at the forefront. I applaud you for your success, both individually and part of the institution as well. I think you guys have always been the adults in the room, as we like to say, and as a result of that, you've helped the industry overall, uh, over the last couple of years. So thank you again for being part of the podcast and I look forward to seeing more announcements come from the bank.

Speaker A: Thank you so much, Paul. Really appreciate this time today.

Speaker C: Absolutely, man. Thank you.

Speaker A: See you. It.