Institutions 🤝 Decentralization by Danny Ryan - Devconnect

[music] But that's all I got to say about ETH today. Um, okay. So, I spent nearly a decade uh working on decentralized systems, working on building Ethereum, working on uh mechanism design and decentralization and security and resilience. And now I spend every day talking to banks. It's a bit strange.

Um, it's actually quite fun. It's quite fun for me to learn a lot. They learn a lot. Um, and in fact, I I've learned learned a ton. People still use business cards quite frequently.

Everyone uses LinkedIn. I could have sworn this, you know, had fallen the way of MySpace, but it's it's lit. I I don't have a LinkedIn yet. I'm sure Valyria's uh upset about that fact, but they still use it. Um, and Wall Street is actually no longer on Wall Street.

Like I think the New York New York Stock Exchange is there. Otherwise, they've all moved to Midtown. But actually, markets are terribly inefficient, right? We we when we think about institutional markets and things, we might think about equities. We might think about, oh, I can do like an instant trade online, no problem.

But actually, one, that takes a day to settle. Two, that's the most efficient market that there is. And if you if you look underneath the hood, institutional markets are riddled with inefficiencies, tons of manual steps. It's kind of crazy. The technology is super fragmented.

Frequently, uh, an asset manager might be using one software to uh, manage their positions, another software to settle, another software that has to integrate into something else for compliant. It's it's it's a total disaster of a Frankenstein of software stack. Um, and some of these like they're literally faxing stuff to each other. Settlement and other critical activities take far too long. As I said, uh, equities settle in a day.

Um, I think bonds settled in two days. It was a huge upgrade like 10 years ago. They went from T+ 3 to T+2. Three days to two was a huge win. Um, and and it's funny in Ethereum land, it's like trading and settlement, it happens at the same time.

We get that for free. Um, and middlemen and counterparty risk are systemic. Just the way that this system has been architected for well over a hundred years. It's laws on top of paper, on top of middlemen to fix a problem, to whatever. It's actually a really interesting historic and anthropological study to like figure out how the hell they even built a system like this.

But we have better tech now. It's time. It's time to fix this thing. So, the thing that is most interesting that I've learned uh and surprising is that Wall Street and sorry I'm saying Wall Street I mean institutions. We're going to use the same word there.

Um demands decentralization. Wall Street in maybe the the most unlikely place for me actually is a customer of decentralization. And this is funny. I mean, we spent quite a long time working on these resilient and decentralized systems. And you know, y'all care.

The the the cipher punks care, the cryptonative care, but then you move out from there and people are trading stable coins on Binance and uh memecoins on whatever the hell. It doesn't it doesn't seems like it doesn't really matter like where who cares about this stuff and Wall Street does and let me help you translate and why their lens actually cares about decentralization. First of all, one of the dominant lenses of an institution is counterparty risk. Who can screw me over from my trading partner to some affiliated bank to the infrastructure that we're using? Like how can I lose money because someone else is going to screw me?

That's counterparty risk. And ultimately, decentralization, credible neutrality for the infrastructure layer reduces, if not eliminates counterparty risk. Uptime. Don't mess this up. This is really, really important.

They talk about it all the time. They want this 100% uptime. Very, very I'm looking at you, Perry. Very, very important. Um, and the fact that we've we've done it, I mean, the reason we've done it is because there's a dozen clients working on this thing.

Uh, there's thousands of nodes running this thing. Like, it's it's because of it was very purposeful, but it's very very important. They care about the systems being online. Cryptoeconomic security is a scarce resource. There are only so many decentralized systems that can exist and have the security to support trillion dollar asset classes.

And I don't mean [clears throat] tons of people with $100 on Ethereum. I mean literally trillion dollar asset classes. We're talking about hundreds of trillions of total assets in the world that we're trying to bring onto Ethereum. And Ethereum has that and it's very difficult to achieve. You can't just turn a system on tomorrow and have trillion dollar security.

You can have you can turn a system on tomorrow and have a bunch of counterparty risk which they don't want. Mature application layer. Ethereum has a decade of this. If you're talking to a bank or an institution and they have any knowledge of any internal knowledge of a blockchain or uh programming language or or anything, it's EVM. It's solidity.

Some of them have internal EVM systems uh in teams. This is because it's been around. There's a mature application layer. There's mature security standards. There are mature application standards.

So on and so forth. This is very important. Institutions don't just use the next hottest software tomorrow. They need something that's been around. Ethereum's by and large the only answer.

This one's near and dear to my heart. uh building out privacy for institutions I think is a Trojan horse for uh m pushing forward the privacy narrative on blockchains in general but privacy for institutional adoption is table stakes like it's not some crazy feature like oh I I have privacy and they're like oh wow exciting you've built cool features no you cannot you cannot begin to have the conversation of upgrading these markets unless you have privacy as good as if not better than what exists today. And that means because that's how these markets work. Institution A and institution B, they decide to trade. No one, they can't just reveal their positions.

That's not how these markets work. Maybe they see the total trade institution A and institution B. Some affiliated bank might see that the trade happened but not know the price. There's all sorts of stuff and there's nuances to these this privacy. And Ethereum is by and large leagues ahead of any other blockchain ecosystem because of the massive amount of capital and effort that's been dumped into applied cryptography and and and research and specifically in the zero knowledge domain.

I mean we've very fortunately uh we've been focused on scaling Ethereum and thus ZK because of the compression of computation and very fortunately those billions of dollars we poured into that privacy kind of falls out like it's a happy like happy accident that compression and uh privacy kind of go hand in hand. So we're we're we're slated. We have a lot of work to do there, but we have incredible foundations. Network effects and liquidity. Liquidity begets liquidity.

Capital wants to be where capital is. Ethereum has a super leg up on this. We need to continue, especially with uh the Genius Act being adopted. There's going to be a massive new wave of stable coin adoption. Ethereum needs to capture that.

And very interestingly, this modular infrastructure, this whole layer 2 thing, very important. I've been in rooms where uh an institution is didn't really understand Ethereum proposition. Uh maybe they were building on something else. You explain all that stuff before. They get it.

They get it. Okay. Security. I like that. They've been around for a while.

I like that. This speaks to them. I mean, banks and institutions, they want all of the stuff that we just talked about, and they want to architect systems that they can customize, systems that they can extend, systems that look and feel like layer 2 connected to the internet of value, Ethereum. And quite frankly, Ethereum is the only answer to the decentralization question and everything we just went over. And once you actually talk to banks and institutions, once you ensure there's not a vacuum in these rooms and they understand, Wall Street demands Ethereum.

Crazy. It's kind of crazy. And actually, I said how I sometimes it's frustrating. You're working on Ethereum, you're like people people got to care about decentralization. It's important.

You got to care about security. You got to care about systems that no one can turn off. [clears throat] And it's frustrating sometimes to work really hard on this stuff and see people chase whatever, you know, essentially like trading coins on on on a multi-IG controlled by like three guys in a basement. Um, and and sometimes you're worried maybe no one actually cares about decentralization. And Wall Street really institutions in the demand for decentralization is actually a lens into the real world.

It's a a lens into the demands of real value and putting real value on chain. And as we make this transition and institutions are adopting, it's actually the real world. And as people are maybe chasing the latest memecoin, they don't care about decentralization. But if we're thinking about putting our retirement on chain, if we're thinking about putting the deed to our house on chain, the real world is going to demand decentralization. And for a lot of this on all those things that we talked about uptime, security, the resilience of of the software that's architecting the solutions that you put your entire value on, parody is the baseline.

You have to have systems that are as good as if not better than the systems that exist. And I think we need to move past as we we move towards uh real world Ethereum. The Ethereum community is incredibly good at building infrastructure, incredibly good at building resilient systems, incredibly good at navigating like this inc like nuanced tradeoff space um of mechanism design. But we need to move past if you build it, they will come. we need to move past.

Although I've been in rooms where if you explain it, it does kind of change their lens and view, but we can't just explain it to them. We can't just explain why they need decentralization, why they need Ethereum. We need to compel the world's assets on chain. We're not tokenizing assets. We're not bringing assets on chain.

We're making systems that are so much better that the world's assets cannot help but move on chain. [snorts] So there are I think broadly when I think about especially in the institutional space uh moving a market or a particular asset on chain we can think about the value proposition. It's twofold. they could be simply better in isolation. So like, oh that's faster.

Oh, I don't have to trust that middleman. Um, and it's so it's cheaper. Oh, you know, the interface is just really nice. Um, and then there's better because of the extended ecosystem of possibility. I think we often in the Ethereum landscape get hung up on number two.

We get hung up on well assets are going to be you know it's it's they're natively programmable and you can put them in DeFi and other assets are there and you can combine them in new ways and that's incredibly important like that is the value proposition but we need to spend more time focusing on creating things that are just simply better applications real applications if I look at you know institutional products they're stuck in the stone stone ages, but they they have elegant interfaces sometimes. They have rich functionality. They have deep reporting tools. They make compliance easy, you know, and and this is uh if we're going to tackle and make assets and markets want to move on chain, we need just to have products that are simply better. It's really exciting being in the institutional space rather than some of the consumerf facing space because uh some of these markets are so inefficient, so broken, so riddled with middlemen that uh by moving them onchain and using some of the things that we just get for free uh they are actually just simply better.

But again two is going to channel the longtail of assets. One is where the focus needs to be. So measuring success of real world Ethereum, measuring success of institutional adoption. We should measure success in trillions. Um I looked at some RWA tracker this morning.

I think it said like 18 billion in RWAs, real world assets on Ethereum today. Um, well, for one, it's funny. We call them RWAS. Uh, if you go and talk to institutions, they're just A's. They're assets.

Um we we uh ascribed something quite quite quite funny there but we're we're bringing trillions of assets on chain and uh let's see institutions so assets under management I was looking at a report I think it's 2024 estimated 120 trillion trillion in assets investable assets under management out of something like 220 trillion total investable assets. Um we have a lot of work to do if we're going to onboard the global economy. Um and given that ratio, uh the targeting institutional capital is is critical and institutions either that that capital needs to flow out of institutions and onchain or institutions are going to become more and more DeFi native. I think we're going to see a bit of both. Another component of uh measuring success is impact and the evolution of markets.

So when I think about a particular uh institutional asset class or market and bringing that on chain, I think about it in two phase. One, let's rewire the market. Let's utilize the things that we get from Ethereum. Let's put things on a layer two. Let's program settlement and the rules of settlement.

Let's take out manual checks. Um, oh, this is something I meant to say earlier, but uh, for a lot of institutional markets, uh, Ethereum is fast. Uh, I know everyone's focused on we need single slot finality. We need faster slot times. This is very important for the consumer stuff.

Um, but it's again funny to be in a space with institutions where uh, Ethereum is is fast. Um, I just I I love it. I love talking to institutions because I like oh we built something that you really you really want you really like. Um so impact and evolution again trillions and then evolution. Let's bring these assets on chain and then let's evolve these markets and that means expanding access.

Some of these markets are highly gated right now. Um expand access through onchain products, expand access through DeFi. um make them more efficient, uh make integrate onchain capital formation, have more people to be able to play the game. Um and it's funny, you might ask, why are these markets gated? There's a lot of reasons.

Sometimes they're gated because they're subverting some law, and if they weren't gated, it would change the asset classification. Sometimes they're gated because they're just gated, and they like playing the game with each other rather than other people. But expanding access on Ethereum when you actually get into it and you talk to the the high people up at institutions is uh it's positive sum. Vivic al I'm trying trying to channel his words. It's positive sum.

Uh institutions want more asset center management. Um people want access to financial products. And so really once we move assets on chain, once we move markets on chain, um then we get to throw all of the magic of DeFi at them and and begin to evolve and expand reach. Um I like to work on the most important problem. Fortunately, Ethereum has no lack of most important problems.

Um this is only one of them. But I spent all day every day working with Etherealize working on uh institutional adoption. This is a mixture of um being in the room where previously there were vacuums. This is a mixture of explaining no no don't build on that very unused strange esoteric privacy chain that doesn't actually isn't actually much of a chain. It doesn't actually give you DeFi or anything you want built on Ethereum.

Um, and like I said, uh, if we're going to build this bridge, we actually need to be building. We actually need to be creating things. We actually need to be architecting private environments. We actually need to understand assets and their flows, understand the complexity of law, understand the complexity of compliance, understand all of the needs of the real world. Because if we don't, we're going to be leaving functionally all of the global economy on the table.

And if we're going to change the world, it's time to go on to Ethereum. Thank you. I appreciate it. It's really, really fun to be back um standing with y'all. It's fun to be talking about something new.

Um it's nice to see all of my friends up front. Appreciate it. Thank you, Danny. Uh, we have some time for Q&A and we have a bunch of great questions coming from the audience. So, going to start with number one.

Um, once it loads, give me one second. Sorry. Uh, what is one thing about decentralization in Ethereum that you find is a big misconception when speaking to institutions? Is there one thing that stands out the most? Um look I mean people are increasingly get it get it like people on in the institutional space uh there is a sense of FOMO there is a sense of uh being left behind there's a sense that fintech is going to eat their lunch and they're going to become irrelevant and so increasingly there is a if not an understanding of these systems an understanding that they need to understand these systems.

And so there's not a ton of misconceptions other than one that comes to mind is maybe decentralization. And again, these aren't these aren't necessarily the proper words to be speaking in these environments, but decentralization might mean lawlessness or the inability to put access controls or um everyone can see my positions. And actually, as we all know, there's an incredible amount of nuance to uh what you can do on chain. It's a programmable environment. You can do like literally anything that you want.

Um so, a bit of that, but they're willing to again there's FOMO like they're worried that they're going to get left behind, which is incredibly exciting uh time to be in these rooms. um for a builder that's just getting into space that wants to lean in a bit more and work with institutions a bit more than they have in the past. How do you recommend doing so and how is your own journey heading into this part of the world?

Right. Um institutions are I am very fortunate. Um I come from the Ethereum side of things. Uh but with Vivic and some of the people that we've assembled over at Etherealize, we really can bridge the gap. Um, I would say that just as complex and difficult it is to kind of jump into, although it's very welcoming, the Ethereum landscape and really understand the details of the stack.

Um, similarly, Wall Street's a complex beast. Um, so I don't know. I would I'd find a friend. I'd find somebody who's been trading on Wall Street and wants to learn about decentralization and Ethereum um, and join join forces. Is there danger of Ethereum getting co-opted by institutions with more adoption?

Is there some issues and some threats there?

Um certainly. Yeah. I mean uh if if the in a former life I talked about capture a lot um from especially at the consensus layer um you know who's who's at the table who can who can adjust Ethereum um who are the key stakeholders that uh if they put their foot down and said no I'm not going to do the fork what is that um I think that we sit in a position where we need to keep the core of Ethereum resilient, distributed, global while also making sure that the world's assets, the actual global economy moves on chain. Um, I think that as long as we are forking, there is risk. I uh I don't think I stand here as an ostificationist.

I think that we have a ton of work to do. Uh, but be careful while we do it. um you know I guess like when you look at telling this story to institutions well like getting being in the right rooms how do you feel um Ethereum can be better in ensuring that they the institutions hear the right things like Etherealiz is doing a lot already how do we scale that work such that more people can be speaking the same things as well um you know and various people who are in various rooms with governments and institutions around the world can also be you moving in one direction

yeah it's been very exciting to see the Ethereum Foundation um create their kind of their enterprise group. Shout out to James Smith if you're in the room. Um that's it's it's a massive landscape. I mean, we're talking about hundred trillions of of assets. Um dozens hundreds of of key companies both in the US and and beyond.

Um we need a we need a force, right? It's not just one company that's going to we you can move the needle, but it's going to take quite quite a bit of effort. And so joining forces on on narratives, uh joining forces on simple uh educational stuff and making sure that we're in the rooms across the world.

Is there something you know now that you wish you knew when you first started? I maybe a a translation of of language, right? I've I've had to learn how to say the things that I know from Ethereum, but say them to a completely different audience. Like again I think uh I was talking to like the former head of oil of JP Morgan and I used I said art I said real world asset and he's like what the are you talking about [laughter] and uh you know certain little things like that it it takes a while to kind of translate the language. It might be a fun project to figure out how to map.

Here's a another funny one. Atomic settlement, right? Atomic trading, atomic swap. Um they have one they have no notion of that almost like the fact that sometimes like I receive we decide to trade I receive the asset and I'm supposed to send you the money and like these might not be conditioned upon each other like I receive the asset and then I'm like I'll send you the money later. It's actually I'm making more money than the the fees by keeping it in my bank account.

Um, so there's a lot of uh one language crossover and figuring out the the right translation, but then there's also like we have this whole new language because we have a whole new world of possibility on Ethereum and some of the things that we think you kind of just get for free. We need to educate and um provide the proper language for them.

Is there one thing that makes like people's eyes glow up when you mention them, but especially when they're new to Ethereum? Is there like something on the institutional side that you feel resonates particularly well?

The L2 thing really resonates with institutions, maybe for better or worse, but like if an institution's thinking about two different chains and they think they're equal, but there's one where like them and a number of partners could get together and and create an L2 versus one where they kind of go and they have to play in someone else's arena. Um it's a huge huge consideration.

Awesome. Yeah. Um, you know, I guess like one of the things with more and more people joining Ethereum now like is getting the right narratives out like getting when we speak to institutions, how do we ensure that we're all saying the same things. You mentioned that as well. Um, how do you collaborate?

How do you think about collaboration generally across the ecosystem? Um, you mentioned there's L2s, there's DeFi teams, there's builders, there builder groups across the board. Like what do how do you view that?

It's funny. I've been I spent the last year far less collaborative than I have before, right? I'm I'm like decentralization maxi working on open source and whatever. And I've just been so engrossed and heads down trying to work through and figure out how to patch and and and bring forward this problem that I haven't actually been in a deep collaborative mindset, which is I I fault myself. I need to I need to get back into that that mode.

Um, we have incredible tools across the ecosystem. One of the things that that comes up most is is again the layer twos, which layer two stacks, how to think about security, how to think about the trade-offs, all that kind of stuff. [snorts] But as the world's assets begin to move onchain, that's not going to be just kind of that interface. It's going to be DeFi. It's going to be how do I think about onchain lending?

How do I think about onchain capital formation? How do I think about integrating these tools? What is what is the stack of compliance and other things? So I think you know as we begin to compel the world's assets on chain every piece of the Ethereum ecosystem needs to be leveraged to its fullest extent um because that's what we've been building for.

Awesome. Yeah. You know and like all the things you mentioned like DeFi onchain capital formation etc. Like these are things that can happen today. like this is this exists and in large part thanks to the years of work that Danny's been doing that he's been doing his entire life and is continuing to do uh leading this ecosystem forward.

So can we get another round of applause please for Danny Ryan? Thank you.