The tokenised fund revolution begins

Speaker A: The Future of uh, Finance podcast where finance finds its future.

Speaker B: Hello everybody, I'm Dominic Hobson, co founder of Future of Finance. Welcome to our webinar. The Tokenized Fund Revolution Begins. Our title reflects our conviction that something interesting is happening at the point where cryptocurrencies, blockchain technology, tokenization and funds of all kinds intersect. Bitcoin futures and later exchange traded funds came first, growing rapidly after The SEC approved spot Bitcoin ETFs seems, uh, like a lifetime ago. Back in January 2024, cryptocurrency exchange rated funds are now worth more than US$100 billion. Now those ETFs are not tokenized, they're just traditional ETFs, but they've given regulated investors ready access to native blockchain assets. Tokenized funds, on the other hand, money market and treasury funds mainly, uh, have also been growing since Franklin Templand launched the first one back in 2021 I think it was. But they've been growing rather more slowly. I found it rather hard to get a fix on the current market value. But tokenized money market mutual funds are now worth maybe US$13 billion. And they offer what traditional money market funds have long provided, uh, namely capital stability and yield, but with the added advantage of being able to turn the fund into cash or collateral instantly. 24, 7. It's a very clear example of how tokenization enhances a traditional product. It's not the only instance. Tokenised funds, like any fund, must comply with regulations designed to restrict distribution to eligible investors who suit the exposure and understand the risks. And importantly, are not money launderers, terrorists or sanctioned individuals. Fund tokens can't just be sent to any old digital wallet that wants them without the risk of regulations being breached. So instead of relying on transfer agents to screen investors against databases, ineligible wallets can be excluded by embedding controls in a token smart contract. And that's another example of how tokenization can enhance a traditional product. These enhancements are signs, I think, of a growing convergence, which many people have commented on between the traditional and the tokenized. And on the trading side, that convergence is clearly shading into integr. The carry trade technique familiar in traditional markets is now being applied in tokenized fund markets to capture the spread between the higher yields on cryptocurrency and alternative asset class funds and the lower cost of collateralized borrowing. This is the background against which in the spring of this year, Coinbase, uh, Asset Management added a tokenized share class to the Coinbase bitcoin yield fund. CBYF. It had launched a year earlier in, uh, April 2025. That fund was aimed always at institutional demand for Bitcoin yield. It recognized that to get yield in Bitcoin means taking risks, essentially lending it, which generally means moving it out of safe custody, which of course is apt to make institutional investors uncomfortable. So Coinbase Asset Management has reduced that risk by integrating third party custody. Coinbase also has to ensure the tokenized version of the fund doesn't end up in the hands of ineligible or criminal investors, which is where Apex comes in. So we have a tokenized fund aimed at institutional money with safe custody and compliance built into it. That sounds like a recipe that can be scaled, which is why we thought it would be interesting to explore the tokenized Coinbase Bitcoin yield fund in more detail with Apex and Coinbase Asset Management. To help us do that, we're joined by Agnes Mazurek, who is global head of digital assets at Apex Group, the funded asset servicing group, which has done more than any, uh, other organization ready to pioneer digital finance and fund tokenization. We also have Juan Andres Dudier Mendoza, who is head of product Digital Asset stablecoin at Apex Group, where he's led the development and launch of several digital asset products. Also with us is Anthony Basili, who is president of Coinbase Asset Management, the digital asset management arm of Coinbase Global, which he joined from blackrock four years ago. Now, in addition to our panelists, we do of course also have you, our, uh, audience and all four of us, uh, encourage everybody watching or listening to submit questions and comments throughout this webinar, uh, by using the Q and A functionality at the bottom of the zoom screen. Uh, rest assured, I'm not going to save questions and comments up to the end, but we're going to endeavour to answer them as we go along so that you can be an integral part of this discussion right from the outset. Uh, to a large extent, you've already been part of this discussion because when you registered, you completed our multiple choice questionnaire. Um, and I'm going to share with you what you collectively told us in the course of this webinar in the form of charts. Some of you have also taken the opportunity to put questions to our panelists in advance, and I will see those throughout our conversation as well. I think we should start with some basic questions about the Coinbase Bitcoin, uh, yield fund. And Juan, perhaps I could start with you. Uh, your experience in the fund industry goes back, uh, at least 15 years. Now, how would you classify the Coinbase Bitcoin Yield Fund. What sort of fund is it?

Speaker C: So Bitcoin Yield Fund, uh, is a hedge fund based in Cayman. The initial launching, then uh, later last year we uh, supported Coinbase with a US Bitcoin yield fund that also has a US uh arm to, to the, to the fund, but initially it's a master feeder structure in, in Cayman. Bitcoin Yield Fund is a hedge fund that invest uh, that, that aims to generate yield on top of what the Bitcoin price yield is generating. Uh, and, and it's, it's been very unique journey for us in terms of the features of the fund that we wanted to allow. We have been servicing digital assets or crypto native funds since 2013. But this was definitely on the innovation side of this crypto funds that we have launched in the past. So we were very happy to support Coinbase in this journey and be able to uh, achieve the expectations and continue to innovate in the ways we distribute this fund by the means of tokenization.

Speaker B: Thank you, Juan. Anthony. Uh, I mentioned in my opening remarks that the spot Bitcoin ETFs have been a pretty conspicuous success and they haven't needed to be tokenized. So what from your point of view does a tokenized version of this particular fund add?

Speaker D: Yeah, well I'll just commend Juan for doing a great job explaining what the fund's purpose is. And just to reiterate, um, this is an actively managed strategy where we seek to outperform the performance of Bitcoin. So investors receive the beta, uh, the underlying Bitcoin performance and then we aim to deliver excess return on top of that performance. And um, this is unique in that because it's actively managed, it requires us to be able to have infrastructure and connect the underlying um, trading strategy to different exchanges, different uh, clearing parties, different collateral parties and different custodians. Uh, the vast majority if not all of the activity today happens with Coinbase, Coinbase Custody, Coinbase Derivatives Exchange and through Deribit, uh, which is our options, uh, strategy. But when we launched about a year ago a lot of that infrastructure wasn't fully in place. And these are all things that are very hard to put into an ETF wrapper today. So I think um, to answer your question around ETF versus traditional fund, the answer is, um, active in ETFs for crypto isn't fully ready. Uh, and so when you want to put an active strategy into a fund structure with digital assets today, generally it needs to be a private market fund for institutional investors. Um, some of that also has to do with the fact that it requires a 40 act issuance. And so the SEC isn't quite ready with active on digital assets either. Um, in the United States now. Um, so, so packaging it as a traditional institutional product, um, makes a lot of sense. Uh, and hence that's the path we took. Um, to answer your question, why, uh, why was uh, the Bitcoin ETF so successful? Successful. And uh, why didn't they need to be tokenized? And the answer is, uh, ETFs are a very mature product category. Uh, I can remember back in 2011 when I joined BlackRock, they had just acquired iShares from Barclays, uh, back in 2009. Uh, and we were doing the integration of the existing suite of ETF products. Uh, I was very early in, uh, doing what we called zipper trades, which is in kinding and redeeming the underlying portfolio into and out of the etf. That was a relatively manual process back then. Today it's about as mature and robust as you can get, handling trillions of dollars of activity in port primary market activity. Um, and so, uh, the ETFs were very successful because they are a very mature, robust product that accesses institutional and retail investors. They're very well connected to traditional, uh, retail and wealth distribution channels who are looking for the type of volatility profile that Bitcoin brings. Tokenized funds are not connected to distribution yet in the way that ETFs are. Tokenized products are in the early innings of where the ETF category was, uh, pre2010. Uh, and so it's very early days for tokenized funds. But I do expect the tokenized fund wrapper to be, and I think it is the next iteration of what ETFs are. It uh, is the next version of these flexible wrappers that are going to be issued and run across blockchains that allow an even larger audience of investors across retail and institutional over time to access new products.

Speaker B: Uh, thanks. That's a very full explanation of why an ETF didn't make sense here. It's active, you need a hedge fund and so on. Because the 40 act legislation, uh, isn't quite ready for this type of thing. Um, I'd like to explore further why uh, it made sense to issue a tokenized version of existing fund. But before, and I'll put that question to Juan first, but before I do, I'd like to share the audience, uh, the answer the audience gave to one of the multiple choice questions we put to them when they all registered. Now that question was, do you think the full benefits of fund tokenization depend on uh, native issuance only? And we asked that because one of the criticisms of these digital twin fund tokenizations, of which the CBYF is an example, is that it doesn't deliver the full economies which tokenization can deliver. By which we mean of course, getting rid of custodian banks, transfer agents, fund accountants, payment banks, all those things that were promised, uh, by blockchain in its infancy. Anyway, what's in front of us now is what you, as the audience actually said. And uh, as you can see, just over half of you thought the full benefits do not depend on uh, native tokenization. About a third of you thought they did. A, uh, fifth of you, or just under a fifth of you didn't know. Now that surprised me. I thought there would be much more support for native tokenization as the way to unlock meaningful gains in this process. And we'll come back to that issue towards the end of the webinar. Um, but Juan, perhaps I could put this question to you. It would obviously have been possible for Coinbase to, to launch a fully native Bitcoin yield fund on blockchain. Um, and I won't expect you to speak for them, but just in general at a high level, what are the arguments for adding a tokenized share class to an existing fund as opposed to launching a new fund entirely native to the blockchain?

Speaker C: So I think there are a few things to consider in this question. Right, so we were speaking about it before. The regulatory context of the fund, the recognition of what that share can represent, uh, and the register function of the TA needs to be present. So even if the token is to be recognized as the share, the share register needs to be maintained by the transfer agency on behalf of the fund. So even though sometimes we get caught up in this discussion, digitally native or fully on chain, and I do agree with the audience here, because you can get benefits of the tokenization without having to call it fully native. Because at the end of the day you need to have the transfer agency back in uh, that life cycle of the token and having the full information required to comply with the company's act and with the register function per se. And for those who think that this question was a yes, it has a level of a yes as well, because the fact that is non recognized if it was the opposite. So in Cayman there was this clarification in early this year and APEX was uh, very proactive in liaising with CEMA early days, even before that Legislation went out to make sure the Mutual Funds act was updated to recognize the fund tokenization, not as a separate activity, uh, a virtual asset activity of issuing tokens. So that level of clarity is needed for the recognition of the token. But then the features of the blockchain or the benefits can still be unlocked. If I may, uh, uh, with a quasi digitally native token. Right. So do you still need the register uh, function but the token can be the share.

Speaker D: I'll, I'll just add a little bit of color here. So you also have to consider what, what the users want and you know the, in the, in this instance today with a tokenized fund or tokenized product, who are we catering to or catering to? The digital asset user, the crypto native user. Today those who have wallets, they have accounts at digital asset exchanges, um, they operate in defi, they operate using stablecoins, um, and that includes individuals, high net worth investors, family offices, corporate treasuries that are publicly traded in the United States, um, registered, uh, exchanges, custodians, wallet infrastructure providers, cybersecurity firms, on and on and on. Uh, there are uh, dozens and dozens of different types of companies and institutional investors who are operating on these rails today. They want access to traditional portfolio exposures. They uh, need to manage their own treasuries, they need to move risk for clients and they need to do so in an efficient way. And they generally don't um, don't uh, want to go and utilize traditional banking rails to the extent that they don't need to because their clients that they serve are also digitally native as well. Um, so those types of investors are looking for traditional market exposure but served to them on the blockchain, served to them in a tokenized wrapper. Now the key question here you're asking is does um, that traditional exposure have to be fully digitally native or can it be a digital twin? Um, the answer is nuanced. If it's a protocol that allows for collateralized borrow lend typically on Bitcoin for example, um, that is a digitally native asset. The protocol is smart contract and it's programming language. And so the protocol does want to have full look through and transparency into every aspect of what that asset that is collateral is. It needs to have control as much as it can. And if there's an element of the fund which is fully off chain, uh and the data isn't available to the protocol or the manager of the protocol, that becomes a little bit harder for something that should be automated technology to utilize. Now if it's a corporate treasury that's digitally native, who can go and do the proper diligence on the product. And they could say, okay, I understand that this is a digital twin. There's a record keeper, there's a transfer agent behind the scenes, there's a custodian holding the underlying exposure. But, um, m. My representation is a tokenized, uh, fund on the blockchain. They're perfectly fine. They're happy to hold that type of format. And so it's not that different when you think about this relative to ETFs, uh, uh, I don't know what the number is today, but for a long time, 99% of the activity of ETFs is secondary market. 1% is primary market activity. Institutional investors like the idea of taking the in, kind out and knowing where the underlying is, but they almost never do it. And early in the days of ETFs, they were very concerned with, well, can I get the underlying? Can I have access to the underlying stocks if I need them or if I want them just to know that I have, uh, the ability to handle this perspective. Uh, but they never do it, right? And tokenized funds are the same way, right? They want to understand what's behind the. The wrapper. Um, they would like to be able to know that they can get the underlying and, um, do proper diligence on it. But, uh, they don't necessarily need to be able to go and take the underlying asset. It doesn't have to be digitally native to answer the question.

Speaker B: That's a very interesting parallel between, uh, ETFs and digital twins. So, um, thanks for pointing that out, Asia. I hadn't thought of that before. Let's move on now and talk about distribution, which you'd begun to touch upon there, about the types of investors who are interested in different types of vehicles. Now here again is an area where our audience can get us going because again, we asked all the registrants whether they think tokenized fund markets are the beginning of something special or not. And here in front of us is, um, what they said. Uh, less than half of you, 45% of you, thought tokenized funds are the future of fund distribution. 30% of you, about a third of you, uh, that tokenized funds are useful for some investment strategies. And 20% of you, about a fifth of you, uh, they're useful for widening access to alternative asset classes, which often don't have an efficient infrastructure already. Things like private equity, private credit, I guess. Um, less than 5% of you, uh, think that tokenized funds are of no more than experimental interest. Uh, and we see enthusiasm in, in the middle there for uh, you know, the improvements which uh, tokenized funds can, can bring too. So I think it's safe to say that about 95% of our audience are really enthusiastic about tokenizing funds. Now Juan, perhaps I could ask you to dig a little into that finding that tokenization is the future of fund distribution. What do we mean by that? Do we mean that new distribution channels open up or enabled by tokenization? And if so are those channels geographic? Uh, you've already touched upon regulation as a sort of enabler and barrier here. But are they geographic or is it the types of investors Anthony mentioned, for example corporate treasurers? So what do we mean when we say tokenization is the future of fund distribution?

Speaker C: I think the democratization is a good point that, that the tokenization brings but it's also the change in the generations and what Anthony was also saying the way to attract these digitally native investors. And one of the features of uh, uh the Coinbase Bitcoin yield fund is you can come in on chain. So both cash and um, security leg are on chain. So you don't need to move to the traditional rails. And if we see how successful the emerging market has adopted the access to on chain assets uh we can see how definitely how the use of blockchain has been democratizing the financial service in general. Not to just speak about funds but then if we think about the funds obviously um, new distribution channels are being unlocked as we pick Anthony was mentioning. We are in early days but we're having these conversations every day of how traditional distributors are open to wallet infrastructure and want to distribute this new uh, um type of assets for them. But also how the digitally native uh infrastructures uh the big changes that the big digital venues are going to be listing this traditional ah, structures but now that they're being tokenized they're able to offer this to their uh customers wallets. So I think it's a mix of what the audience uh have answered but I also believe it's a change of the generational change of how we see things moving and the accessibility and the composability of what a phone share being tokenized can bring.

Speaker B: Looking at the audience um, I just remind the audience that we do welcome questions from you if you want to use the Q and A functionality. Do put questions to our um, panelists using that tool. Agnes, you've been very patient. I have a couple of questions for you. Since as the transfer agent here, distribution is obviously your, your chosen Specialist subject. My first question is we've got these funds being issued onto blockchains. Does that mean that existing fund distributors, whether they're private banks or IFAs or wealth managers, do those existing fund distributors have to invest in new forms of connectivity to gain access to this asset class for their clients?

Speaker A: So there are uh, a few points to unpack in uh, your question, Dominic. I think in the future state situation where um, all these various functions that you mentioned at the beginning of the conversation, uh, transfer agent, paying age and uh, conventional custodian, um, when they actually disappear, so to speak, the connectivity that you are talking about will be uh, pretty straightforward. Right? Um, in the interim phase in which we are, where we are seeing indeed uh, hybrid models, um, wave and um, in very, um, very often seeing the transfer, the conventional transfer register, um, transfer agency activity happening um, in parallel, um, to the activity on the blockchain, obviously um, that connectivity is required. And um, this is very much part of um, of business as usual these days to have these API connectivities, uh, set up um, between the various players. What it does do however is that uh, it does create a model that is a bit clunkier and that is not frictionless. Ideally you would like something that is really frictionless and that makes the investor experience, the client experience, uh, really smooth. So to the question, yes, um, for now all these additional connectivities and interfaces are still required. Um, but what we are doing as ah, an industry of service providers is that we're working at reducing the frictions and making the process really more seamless.

Speaker B: Okay. You've described there that the interoperability, if you like, between the traditional register and the blockchain ledger is quite clunky. Um, that is a problem familiar in this area, I suppose, a problem of interoperability in terms of how this market is. If what we're looking at here is an experiment which is going to scale over time and we're going to have these digital twins existing in substantial numbers and substantial values and volumes. Um, how is that interoperability problem going to be solved? You're obviously working on it inside the firm yourself. But there may be a wider industry issue here. I don't know whether you've got some reflections on that, on how do we make these protocols, uh, interoperable and interoperable also with traditional fund registers.

Speaker A: So if I take the perspective of Apex Group as uh, um, a service provider, what we are doing in the instance where when we are also leveraging our tokenization, uh, capabilities and our tokenization platform through uh, tokeny, ah, everything happens under the apex roof, so to speak. So that conversation between um, the blockchain register and the off chain register that needs to happen is happening quite naturally. And it is not something uh, that is visible to uh, the client, to the issuer or the investors. And we are very much of the opinion that all these um, technical considerations should really stay under the hood, so to speak. The client shouldn't really care about the technology. What they should care about and they're interested in is how effectively the solution uh, is delivered to them. Do you have anything to add to that

Speaker C: in terms of interoperability? I feel like we need to get into the stage where we're selecting blockchains and thinking about gas fees, et cetera. It's completely invisible for the industry. So then that all of this, there is many uh, solutions being put in the market in terms of breaching and interoperability. And we also ourselves looking uh, at the future of that with our own uh, uh, layer two T. Rex for reconciliation purposes. But definitely there needs to be a harmonization in the industry as a whole as uh, to how do we make sure that we don't create more silos with different blockchains and we could create an ecosystem that speak to each other uh, smoothly and not creating any additional risk by adding breaching communication systems.

Speaker A: And there's a little bit of that going on, isn't there when we talk to. Because we are really sitting at the, I would say uh, on the frontier between the traditional um, servicing uh, of funds and clients and the more default we hear all that noise around private blockchain, public blockchain, where are we doing this, uh, on where should we tokenize. And I think that's kind of not necessarily very productive for clients because if we are going to get to a point where indeed distribution can happen and scale, uh, that interoperability is absolutely essential.

Speaker B: A member of our audience asked a question here and Anthony, I hear you.

Speaker A: Anthony had something, a comment. Sorry Dominic, to cut you off.

Speaker B: Yeah, but Anthony, you could probably address this question from Previn Singh, a member of the audience. At the same time, uh, he asked, will digital native tokens and digital twins coexist when we get to the end state of this tokenization revolution, will they coexist or will one model predominate? That's an interoperability question as well. I suppose. Maybe you don't need interoperability if we have one model Anyway. Anton, say what you were going to say and perhaps address Previn's question.

Speaker D: Yeah, I'LL hit them at the same time. So, um, I'll just give you an example. So inside of the coinbase, uh, ecosystem today, you can trade crypto, okay? Uh, you can trade perpetual futures, you can trade options, you can do that on margin, you can trade U.S. futures, U.S. listed futures. Uh, you can trade equities, okay? Um, and you also have the ability to move, um, your digital assets off of the centralized ecosystem into a self custody wallet. The equities are not tokenized, but you can trade them in a fully unified experience, like a user experience, next to your digital assets, which are digital. Okay? Um, and now that we have our tokenized fund, when you hold your assets in your wallet, you can also now hold your tokenized fund in your same digital wallet as well. Uh, and so the, so you have the ability to get traditional market exposure via the equities. You have the ability to take on traditional market risk or implied volume trading or harvesting premiums via the derivatives. Uh, you have the ability to get digital asset exposure via the digital asset part of this. And it's all unified. It's all kind of built together, right? And you know, so coin on top of that, you also have collateralized lending markets that are connected to defi, fully built into the retail experience. Um, and so the unification, and I think we should separate interoperability from unification because I guess the question becomes, what do we mean by interoperability? Do we mean we want one fund to be able to swap against another fund? Well, we don't do that in the traditional world today. Um, you don't generally sell one ETF and buy another etf. You sell something to cash and you go use the cash to buy another product. So traditional assets aren't interoperable, um, and yet they are hundreds of trillions of dollars of notional value. Um, the digital asset markets have the ability for interoperability where you can swap one asset for another asset rather than going to cash. But, uh, that doesn't necessarily mean it's required. And uh, because stablecoins are so, so deeply liquid, usdc, for example, is so deeply liquid and pervasive across multiple networks. In fact, nearly all of the major blockchain networks, the most likely outcome is the interoperability isn't, uh, necessarily the thing you're solving for. It's really just speed to cash and speed from cash from one product to another product. Um, in order for you to have true interoperability, you need to have liquid markets on both of the assets. And so the blockchains are powerful enough to Provide swapping SPY for IBIT for example in the context of a tokenized product. Um, but you have to create the liquidity for the tokenized products on the blockchains as well in order for that to exist. And that's not how traditional securities run either. So I think getting into interoperability is a little bit too, maybe too granular and it's probably going the wrong direction. And the reality is um, can tokenized fund products live in the same uh, um, user experience and user interface next to traditional fund products? Answer is absolutely yes. Coinbase is already doing this. Most traditional crypto exchanges who have now evolved from just crypto only to equities to funds to Robo Advisor and others are also doing this. And I'll add one more thing. Just yesterday, um, Coinbase hosted our um, semiannual product update updating the system, uh, showcase. Um, and there were a number of things that were announced. One of those was tokenized stocks. And so what does this mean? Because we already have stocks available for the retail investor in the consumer app, those are not tokenized. But what does tokenized stocks bring you? Tokenized stocks brings you the ability to um, hold and trade your stock positions in the, the centralized ecosystem of Coinbase, but also move those into your self custody wallet and engage in the on chain environment or third party applications. And that's the real thing maybe when we talk about interoperability is can you move the asset into self custody or into other applications across this connected global liquidity pool that is the global blockchain and can you move that asset around and do what you want with it rather than being tied to one central institution? And that's the key thing that tokenized products unlock with interoperability or lock into

Speaker C: one network as well. So it needs to be fully usable across. Mhm.

Speaker B: I think what I'm hearing you say Anthony, in answer to Previn's question, I suppose is that it almost doesn't matter to think like that because traditional and tokenized are uh, not just converging, they're actually being integrated right down to the level of the wallet. And what will determine what predominates in the end is liquidity. And by liquidity we mean the speed with which you can turn an asset into cash. Those are the factors that are going to matter. I hope I haven't misrepresented you by describing that.

Speaker D: And I think that's right. And what we're all hoping for is that by upgrading to the next layer of technology and financial products which are blockchain, tokenized products. Um, is that they, it will bring um, interoperability, it will bring fractionalization, it will bring liquidity, will bring transferability to assets that don't have it today. Right. Um, some users really care about the self custody aspect of things. Some users really care about being able to take their asset uh, into self custody and go do and engage in defi financial applications to generate excess return. Um, uh, some users don't care about that and they want to keep it inside of a, you know, a trusted qualified custodian environment. Um, and uh, some users literally can't take their assets out. Right. And they want everything inside of a regulated qualified custody or regulated institutional environment. Um and so regardless of what kind of user you are, what you care about is what is the underlying exposure that I have? Do I have the ability to have liquidity? Do I understand what the liquidity dynamics of are the product that I'm being offered or investing in? Um, and we believe that with tokenized products that we can create enhanced uh, outcomes. Right. Um, are we going to create a more liquid version of spy? Spy on the blockchain? Um, it will take some time but I believe that will be the case because you have a much larger global liquidity pool and you have a much larger pool of global actors who can engage in on chain markets uh, versus those who can only trade on centralized exchanges in the United States, for example. Um, you also have the ability, for example we do a lot of work on derivatives today and um, something like 40 to 45% of the volatility of spy occurs at night and over the weekends and it's unhedgable. And so uh, for the vast majority of institutional investors and they're not able to harvest those volume premiums and volume premium is a really big topic in derivative land. So with perpetuals and tokenized stocks you now introduce 24 7, 365 liquidity over nights and weekends. And you introduce the ability to hedge those types of risk factors or volume premia. And that's the idea of kind of like why we talk about tokenization and why we talk about globally connected markets and 247 markets is because there's a lot of gaps that exist in traditional financial products and traditional financial infrastructure that we're trying to solve for with this technology. Mhm.

Speaker B: I'd like to talk a bit about distribution constraints and controls and an obvious constraint here is uh, regulation. Anthony has mentioned that the 40 Investment Company act is not ready yet to absorb this type of uh, structure and there'll be other jurisdictions, but you're not ready for it either. You know, the fund has been structured in the vehicle, it has in the place, it has for real, real reason. So could just, could we just dispose quickly of regulation as a constraint? And one reason I asked that is a member of our audience has said, has said this. Since tokenized funds are something that's new and regulators are trying to understand the kind of limits and regulations that would govern such funds since they will be different from traditional funds. Is this going to increase scrutiny? Um, and how would a company train its people in the day to day working of such funds? So are we in a kind of transitional stage here? I guess. Juan, this is a question for you. Um, regulatory uncertainty is an issue here. Um, it's a constraint on where you can distribute these funds. But you also, as a member of our audience is pointing out here, need your people to be able to process that uncertainty and turn it into real life day to day decisions. How would you comment on the question just quickly on the question of regulatory uncertainty as a constraint?

Speaker C: Yeah, I think there is many jurisdictions that have given clarity. We had the UK issuing a policy statement on fund tokenization very recently. We had uh, Cayman, I uh, will mention as an example that has given very clear guidance as to what represents, uh, under which act is the fund tokenization being in scope and what represents a real new activity. What I want to give the audience comfort is like regulators are getting their heads around in some jurisdictions, but some other jurisdiction has been thinking about it since many, many years. You can see Luxembourg has this blockchain law number four being issued. So it's not that it's recently new of 2026 that the regulators are thinking about it. They have been issuing guidance since many years now. But we need, first I, uh, would say that you need to have trusted uh, service providers that can guide you to that process that have gone through the regulatory scrutiny and the conversations with the regulator before and that clearly understands what the risk, uh, and the risk mitigations that are out there. And for example in the protocol that Anthony selected for his fundamental, which is the 3C4 3, uh, that we have, uh, as our blue chip protocol for font tokenization within Apex, it has been in the market for many years, have been audited from many angles. So you need to have that certainty that the technology and the service provider that you are selected have the right experience and have gone through the right process with the regulator to not give you unnecessary risk internally. If you're a fund manager, you shouldn't Be uh, taking on all of those risks for yourself. You should be selecting right partners for your journey. And obviously education is key for all of the aspects but it should be becoming more and more invisible to the, to the wider audience and obviously visible for the people that are actually doing the tokenization process, which in our uh, case is a transfer agent.

Speaker B: I'd like now to talk about the second topic I mentioned there, which is the controls over distribution. Because it strikes me one of the really interesting features of this particular transaction is how you have sought to automate that process at least partially. And it's the issue I brought up right at the beginning. To comply with regulations which are, you know, are designed to restrict distribution of funds to eligible investors and exclude money launderers and terrorists and sanctioned individuals and organizations. Um, you know, a fund has to control its distribution by checking who's actually buying um, the fund. And how do you do that? My understanding, um, from reading the papers around this is that you have embedded distribution restrictions into the stoke the token smart contract using this ERC3643 uh token standard. Um, and an advertised benefit of that ER3643 standard is it does enable investor eligibility built into the token using smart contracts. In other words everybody who buys it has a validated or verified credentials about their age and investor status. Um, so that ought to facilitate um, distribution by automating the process of kind of investor onboarding. Now I think that token was invented, I understand that token was invented by Tokeny which was acquired by Apex. So this is a real life application of that ERC3643 standard. And uh, it means if you like investor compliance, uh, travels with the token. Um, have I understood that, that correctly? But you could tell us a bit more Juan about how this, how far you've been able to automate the process of investor onboarding using this new token standard.

Speaker C: So the automation comes after the investor onboarding. So once a uh, wallet has been qualified and an investor have been linked to their on chain id they, they and uh, they have a claim that they are qualified for this particular investment, they could trade between peer to peer transfers. This asset and the token will have the minimum subscription amount. They will have the prohibited countries that are given. They will have the, if you can, you can embed many rules but basically you have to extrapolate the main considerations of the prospectus and put it into the smart contract of the token so that you can allow for that checks being done when the transfers are made. So you will not have transfers being made to a wallet that has not been qualified to receive this token and this qualification is given by the onboarding process. So you have a uh, KYC agent which is in this case is Apex checking that the investor is qualified. And once it's qualified it can be qualified for one product of Coinbase, it can be qualified for multiple products at the same time and that means that wallet will be able to interact with and we have the right claims to interact with that token.

Speaker B: We've had um, a technical question about this issue which was submitted in advance and 1. You may feel you've answered this already but I don't think you have. The question is how do you manage bvi? British Virgin Islands fsc that's a local regulator compliance and travel rule mandates for individual SPVs within on chain ID. So the question is about the BVI regulations and the travel, how do you build those into this process?

Speaker C: So what I have seen is like in BVI there are many issuances being done in a uh, more simple simplistic tokenization process whereby the tokens are simple arc20 tokens so they're freely transferable. So in those instances you do not have ways to lock and make sure the token doesn't go where you don't want it to go or it's not allowed to go. What we have built is something a bit more robust that indicates if I made frictions to the arc 20 but there are frictions that are needed because you need to make sure your token lands where, where qualified investor is. So, so you comply. In the travel rule is a rule for M made for cryptocurrencies. So in, in the funds industry that's given the transfer agency and the fund needs to know who their shareholders are in case of intermediaries will be the intermediary. But in the, in the funds the travel rule does not exist as a new rule. Something that we needed to know since the get go. You need to know who these token holders are because they are your shareholders. So in this case they're not buying synthetic tokens. They're not buying ah a note or a uh debt instrument. They're actually buying equity into the fund. So they are shareholders of the fund. So there are more regulations around who can be a shareholder into the fund. So that's why you need more, more controls in the token itself.

Speaker D: Dominic, let me just be clear on this so that everyone understands you know the um, this is a, this is a regulated offering. It's a uh institutional private market fund offering all investors are KYC'd and approved as qualified investors, they are whitelisted their wallet. If they choose to hold the tokenized share class, which they don't have to. Just to be clear, you have a choice in terms of share class you want. You could have the traditional share class or the tokenized share class. Uh, if they choose to hold the tokenized share class, then Juan and Agnes, uh, will whitelist their wallet, uh, and they will approve that wallet to hold the tokenized share class. They will mint the token and put it in their wallet. And that token is only transferable to other whitelisted wallets who have gone through the same fully reviewed KYC process. Okay, so these assets um, cannot transfer directly to non whitelisted wallets. It's restricted by the token standard directly and only the transfer agent can allow for transfers.

Speaker B: M. Uh, we're into almost Our last last 10 minutes now. Had a couple of questions about distribution which are linked in a way, so I'll ask them together. Um, first question is distribution is the bottleneck not technology, what actually solves it? Is it banks plugging in or defi growing up? That's the first question. Uh, what solves the distribution bottleneck? The second question is really about how we talked about this, how tokenized funds fit with traditional distribution networks and operational processes. The question is, as tokenized funds scale, what's the biggest operational challenge? Is it getting people to adopt the technology or is it what we've also talked about regulatory alignment. Um, Agnes, I think you might be best placed to say um, how do we to get these funds distributed through traditional um, distribution networks? Is it a matter of technology adoption? Is it a matter of banks taking it up? Is it a matter of waiting for regulatory alignments? It becomes easier for them. Which of those three do you think it is? The clue is the key, not the clue, the key to uh, unlocking distribution through traditional networks? Is it technology? Is it regulatory alignment? Which are those? Or is it banks?

Speaker A: So I, I play the question back to you as in why do you want to put these on the, onto the traditional distribution rails? Why would we want to do that? That's not what we want to do. Right? If we basically are tokenizing, it's not to put um, these assets onto the conventional distribution rails is to um, basically supplement the uh, existing traditional channels that um, such as, you know, banks and others that are failed to be maybe uh, doing very well but are not catering for the needs of um, the, the population that we are looking to reach. Right. Because if we are, if we are if we're seeing the generational shift of wealth, the people that ah, uh, and we're straying away a little bit from the Coinbase fund here. Um but the people we want to reach and the people mass tokenization want to reach are people who are basically outside of the conventional distribution channels. So it's about creating the Rails to connect with alternative distribution channels that uh, um, so far have remained untapped in particular for private markets assets. What do you reckon? One address.

Speaker C: I will agree with that. Although the traditional channels are uh, catching up to adopt this new technologies and tap into the benefits that could uh, ah, bring to their customers. Right. Because some of them are seeing the wave that might leave them behind. So they want to offer their clients 247 access to certain products that if you open uh, a uh, Coinbase account that Anthony was describing, you get it right away and then it's also how big. For example I was having conversations about the insurance market how, how uh, they want their digital venues to get the same credit risk as their traditional banks. And uh, that's something that is happening as we speak so that if they hold uh, tokenized AAA fund in a bank they get the same credit Vista if they hold it in a Coinbase wallet. So I think those type of conversations that will happen and the regulators will align this will unlock for example in the case that I'm talking about the reinsurance and insurance market to be able to hold tokenized assets that collateral eligible collateral with the same risk treatment as you may to the current token money market funds that they hold today. So I think it's a mix of traditional getting aligned with the regulation and new venues for these distributions.

Speaker D: Yeah, I think collateralization, we talk about fund distribution. Just look at just the idea of cross collateralization and portfolio margin in terms of how banks and other platforms are structured. And it's really hard to use your collateral across multiple players and even through within one institution across multiple regulated venues. So as soon as you have a product like a tokenized money market fund for example that now can be represented as collateral across um, those venues, they're going to come really fast to go and use that.

Speaker C: Right.

Speaker D: And so um, the question is it's already happening now in terms of the pace, the pace is accelerating. Um, there's extreme interest in being able to use assets as collateral more efficiently because there's a lot of wasted space in the traditional financial ecosystem. Uh and importantly also to get 24, 7, 365 trading. Um, remember the market structure of Crypto is fully global 24 7, 365 trading. There are no closed market hours, there are no holidays. So everything in this ecosystem has to first meet, uh, that threshold. And therefore, as you create products in this space, you're going to start from the default of 24, 365 and then you're going to maybe add some constraints. So, um, really what that means is that the fund distribution will come, it will bring in these products because these products, um, will be over time, uh, have new features and have better liquidity than maybe traditional products. But it doesn't mean that they're going to replace traditional products. Like, we still have $10 trillion in mutual funds that exist across large and common platforms. Um, and ETFs absolutely disrupt mutual funds bringing trading throughout the day. Um, but a lot of investors have maintained their positions in mutual funds and are perfectly happy with that. So you're going to see everything coexist together, uh, inside these traditional institutions.

Speaker B: Yeah, you've been very clear, Anthony, throughout this discussion about the integration that's occurring between the traditional and the digital, right across the trading techniques and the asset classes themselves. But anyway, we're into our last five minutes now, so I thought we would, um, end our discussion by looking at the third and final slide. Uh, the answer which our audience gave to the question we asked them when they registered. And uh, the question was what's the greatest benefit of tokenizing funds? And here's the answer that they gave. Um, wider distribution ties with technical benefits, uh, with a third of you supporting one or the other. It's a slightly bogus finding in the sense that we did force you to choose one option rather than two or three. So I think we can take those as linked. Uh, but for me, the most interesting finding here is the third possibility. And it harks back to our first slide where we asked about whether you needed to be native to get the full benefits of fund tokenization. The question here is asked in a slightly different way. It's about disintermediation of transfer agents and fund accountants and possibly also of custodians. And I mentioned how surprised I was that in that first slide only a third of the audience thought the benefits of fund tokenization depended on native issuance. Here we see an even lower proportion of, uh, our registrants, um, take that view. But still, uh, it's a great deal more than the 1.6% that think that digitization of UM IDs, that automation of onboarding, um, is the main benefit. And that suggests that the Benefits of what we were talking about with Juan a minute or two ago about ERC, uh, 3643 need to be more widely, um, appreciated. But a final question to you, um, Anthony, perhaps should I be surprised that this audience isn't more excited about disintermediation? Would you be excited about disintermediation? So

Speaker D: if the greatest benefit is displacing, uh, the institutions who safeguard trillions and trillions of dollars of our capital globally, uh, I don't think that's the highest priority for folks. We would like the incumbent institutions and the intermediaries to embrace the technology. And the reality is if the technology means that an institution gets uh, disintermediated, that's just the nature of the world. Um, but I wouldn't say that the intention of this technology is to do that. The intention is to bring people more access, wider distribution and bring people benefits. Right. It's ultimately around like how, how are we helping more and more people participate in the, in um, in the power of compounding interests and participate in the power of offsetting fiat currency def basement and investing in capital flows that fund new entrepreneurs and create value across our entire global economy. Um, so ultimately this is really about um, unblocking capital so it moves and continues to move more efficiently uh, and gets to the right place. And what we found is a lot of incumbents because they're sitting on legacy technology and legacy processes are struggling to keep up with where capital wants to go. So I would say the benefit really is around uh, kind of pursuing really the power of capitalism, um, in its fullest extent. And I think this technology allows us to do that.

Speaker B: I was about to ask you a um, technical question. I don't know whether you're able to answer this. It's been submitted by a member of the audience. Why would by the minute yield accrual be beneficial as it's a zero sum game and primary market transaction default to full day. I'm not sure I understood that question. Does it have meaning to you?

Speaker D: I mean I would like to compound by the second if I could. Um, so even uh, by the minute is also inferior. And you can do that. There are products already being built, uh, that do compound by the second. Just think about something simple like if you pay your mortgage twice a month, you pay your principal balance twice a month instead of once a month, you offset um, you know, a tremendous amount of that interest cost that you would normally have on a 30 year mortgage. And so this, the idea of compounding is a real thing you can compound debt, uh, and do it over very long periods of time or you can compound interest and make more money and ultimately again going back to capital flowing into the hands of people who deserve it. Uh, that is exactly what compounding on the second by second or minute by minute should accomplish for you.

Speaker C: Right.

Speaker D: Um, I shouldn't have to uh, a When I'm moving money across institutions, I shouldn't have to wait five, seven days and let someone else collect the interest on that, um, and I know piece of it. Right. Uh, and the same thing goes, I shouldn't have to accept a product that only compounds interest daily when I know that the technology exists for me to do it on a minute by minute basis or even second by second basis. And that's the key thing that the market is trying to bring in these products. It requires a technology upgrade. It requires an infrastructure and a market structure upgrade. It does require a regulatory upgrade. We've talked about that today as well. There's a lot going on there. Um, all these things are converging today and coming together to allow us to build those, those types of products.

Speaker B: Mhm. Is our, is our member of the audience correct to, to say that intraday compounding, whether it's by the second or the minute, is a zero sum game or is he just wrong about that?

Speaker D: Well, I think the argument of zero sum is you're saying you're taking money out of one pocket and putting it in your own. That's the nature of capital markets. And so if you don't agree that the markets, um, if you're stuck on the idea that the markets are zero sum, you're probably not going to enjoy engaging in anything investing. So I would push back on that particular comment uh, because I think it's probably a little bit, um, not necessarily aligned with the idea that capital does flow to its highest and best use.

Speaker B: M Now a question for, from a member of the audience for, um, probably for Juan here, and it's an interesting one. When will we move away from the term tokenization and when it will just become the standard market infrastructure in a way? We've talked about that all afternoon, uh, about convergence and integration and so on. But do you think we're going to end up in a place where we stop fretting about the differences and start thinking it's just all one big system of the type Anthony has described?

Speaker C: Yeah, I think that's going to happen inevitably. I think right now you don't think if you save it in an AWS cloud or if you Save it on an Excel or if you save it or, uh, the contract note is safe in one cloud environment or another. You don't think of all those decisions. Uh, and even the regulation is thankfully being drafted in many jurisdictions in a way that is not a new silo, uh, legislation for tokenized funds. It's enhancing the current one to recognize tokenized funds as part of the current and existing regulation. So I think we will get there. Obviously now is the new thing and, and everything is being highlighted and every single detail think. Everybody seems to need to be aware of all the intricacies of the use of the blockchain, but I think eventually we'll be invisible.

Speaker B: M. Yeah. A second big takeaway from this discussion for me is how regulatory frameworks need to change, uh, evolve from where they are. A, uh, last thought from you, um, Agnes. Uh, are lots of clients looking at what you've done with, with Coinbase Asset Management? Uh, and is this, is this model applicable beyond the cryptocurrency fund which we've started with?

Speaker A: Uh, well, yes, they are. Um, like we said, there are multiple use cases to tokenization. And I think that Anthony did mention the, the money market fund, uh, universe that is also, uh, also extra. Extremely active. Um, so, yes, the answer is yes.

Speaker B: Anyway, I'm afraid our time is up. We must leave it there. It was a fascinating discussion which I've taken away a number of very big ideas which we will be working on at Future of Finance. So I'd like to thank our panelists and our audience for bringing those things to our attention. Thank you, Agnes, uh, Juan, Anthony, uh, for spending time with the members of Future of Finance this afternoon. Thank you also to our audience for completing our poll, for your questions in advance and for the questions and comments you've made, uh, throughout this webinar. A special thanks, of course, to Apex Group for sponsoring our discussion today. Now here at Future of Finance. We're looking forward to our next event, which is our annual awards dinner, which we're hosting here in London tomorrow evening. We, uh, hope to see many of you there and of course, at least some of you picking up awards. But with that, it's goodbye and thank you from the four of us.

Speaker A: The Future of Finance podcast, where finance finds its future.