Trading Tomorrow - Navigating Trends in Capital Markets

Crypto and Capital: The Impact of Blockchain on the Financial Industry

• Numerix • Season 2 • Episode 18

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Join host Jim Jockle for this episode of "Trading Tomorrow - Navigating Trends in Capital Markets," where he delves into how blockchain and capital markets with Igor Telyatnikov, CEO and co-founder of AlphaPoint. Together, they explore blockchain's potentially transformative impact on finance, its role in financial inclusion, and its potential to revolutionize asset tokenization. Gain insights into blockchain's evolving landscape and how it may redefine financial systems as we know them. 

Speaker 1:

Welcome to Trading Tomorrow Navigating Trends in Capital Markets, the podcast where we deep dive into the technologies reshaping the world of capital markets. I'm your host, jim Jockle, a veteran of the finance industry with a passion for the complexities of financial technologies and market trends. Because this is Trading Tomorrow navigating trends in capital markets, where the future of capital markets unfolds. Blockchain has long been an enticing technology for those working in capital markets. Over the years, that interest has continued to grow and now mainstream financial institutions have started to explore the technology's potential. It has been dominating the headlines lately, like how the London Stock Exchange Group is looking to explore blockchain for end-to-end digital market ecosystems. Moody's is estimating blockchain technologies can help issuers of financial instruments like bonds reduce financing costs in the next five years. But the question remains will this technology play a pivotal role in the future of the financial markets or will it fail to be adopted?

Speaker 1:

Joining us to discuss is a trailblazer in blockchain and fintech Igor Talatnikov. He's currently the CEO and co-founder of AlphaPoint, a white-label trading and issuance platform that powers digital asset exchanges globally. The platform has revolutionized crypto trading and digital wallets in over 35 countries, supporting 10 million users. Igor has over 15 years working in tech with clients like Shivo CME Group and Scotiabank. Igor partnered with El Salvador's government to transform the Shivo wallet into a nationalized crypto ecosystem. Igor, thank you so much for joining us today.

Speaker 2:

Thanks for having me, Jim.

Speaker 1:

I just want to start for the basics. Not everybody listening has a background in blockchain, so perhaps you can just briefly explain what it is and why it's enticing to the financial industry. Yeah, I would be happy to do so.

Speaker 2:

Blockchain effectively is a decentralized public ledger. Sometimes it can be made private for certain use cases, but it's really an ability to have counterparties across the world financial institutions, individuals transact with each other without relying on a central intermediary or clearing partner to finalize that transaction. So you don't need a bank, you don't need PayPal, you all just trust in the network in settling that transaction. And what blockchain really does? It's a mechanism for coming to consensus on that ledger at set intervals, so something like the Bitcoin blockchain. It updates every 10 minutes and everybody around the world can look at the public blockchain and know that your transfer, my transfer to Jim, you know, or somebody else's transfer one financial institution to another, that transaction has cleared and settled and I can't send that same asset somewhere else. So Bitcoin was the first use case. Now we're seeing other types of assets art commodities, stable coins, national currencies, with CBDCs coming onto a blockchain as just a more efficient mechanism to facilitate financial transactions and transfer value on the internet facilitate financial transactions and transfer value on the internet.

Speaker 1:

So, from your perspective, do you view blockchain as a disruptive force in finance or just an evolutionary step.

Speaker 2:

I think it's an evolutionary step. I think it's very similar to what the internet did for communication you can send an email instantly anywhere in the world. You can now do that with an asset. Right before with the Internet, you can't really send an asset to somebody else because they don't know if you sent that same asset to it to multiple different parties. The blockchain solves that, so it's really a technological layer.

Speaker 2:

It certainly is disruptive in the sense that Netflix was disruptive to Blockbuster right in the streaming of videos and how people consume content but because it facilitates the same types of transactions in a more efficient and effective way. So that's why we're seeing it come into play much more. But it's an evolution because it's just a more efficient way to do the same types of things we did before. We're still transferring money, we're making payments, we're using assets as collateral, but these can now be done digitally in a more efficient way. So that's why we see it more in the evolution standpoint. And that's really where AlphaPoint plays is helping large financial institutions to implement this into their existing businesses and use cases.

Speaker 1:

So you know, following up on the Blockbuster Netflix kind of paradigm there and we all know what happened to Blockbuster Do you think that financial institutions should be throwing their time and resources into blockchain, or just worry about having one ATM in the middle of Minnesota going forward?

Speaker 2:

I think we're seeing I mean there's a lot of disruptive forces in fintech, you know, over the last decade You're seeing neobanks have more users, you know, in Latin America than large financial institutions. So it is something that financial institutions need to invest in, they need to understand, they need to have their own pilots and projects because it can be disruptive to them in the way that Blockbuster was disrupted. But what we've seen in the fintech landscape is much more investment from the traditional capital markets players, traditional financial institutions, so that that doesn't happen to them, so that they're part of the solution, they're part of the evolution, rather than just being disrupted.

Speaker 1:

Arguably, blockchain really became top of mind during the crypto boom with Bitcoin etc. And I guess the question is I always think back to the classic Gartner hype cycle and, as it relates to, where are we on that hype cycle? Are we at the top or are we in a trough of disillusionment? Where is the industry's thinking at this point?

Speaker 2:

I'd say we're somewhere in the early to the middle stages. Still, we have worldwide we have about 420 million people that have experienced transferring a digital asset Right. So we're still on the way to a billion right and it's still a small percentage of the billions on the planet. So it is a process that we're seeing unfold. We're seeing different use cases of blockchain technology. You know, the example of what El Salvador did with Chivo was they saw this as an opportunity to take an economy that seven out of 10 people don't have a bank account to give them a way to leapfrog and have financial instruments and financial access and not just hide the dollar bills in your mattress, but you have a way to actually hold assets, hold Bitcoin, hold digital dollars and pay for those at the store, the largest grocery store in the country, many merchants across the country can now accept digital payments and it was done in a way, thinking about blockchain and Bitcoin as a vehicle for financial inclusion, as a vehicle to leapfrog and provide a financial highway, similar to governments investing in roads and infrastructure. This is financial infrastructure for the population that didn't exist right In the US we take for granted having PayPal, having Venmo, having all these options, Cash App, right, All these ways to transfer value from person to person.

Speaker 2:

But again, only three out of 10 people in a country like El Salvador and many developing countries even have a bank account, even have a way to store value or make a payment. And you need that layer to actually add other types of financial instruments and really develop those countries to have lending, to have credit cards, debit cards, other types of financial instruments all sit on top of that ability to store value. So now we're seeing countries like El Salvador and many others around the world leveraging this technology to do that. Another anecdote I like to mention is in China. They leapfrogged through having landlines. They never laid landlines in most of China, they just went straight to mobile phones, right. So this is an opportunity for many around the world to do the same with financial technology.

Speaker 1:

Yeah, I was thinking about China, I was thinking about India as well just completely leapfrogged and went right to mobile. It's unbelievable. So I mean an interesting parallel for those who might want to think about the evolution of digital assets, to look and see how emerging countries are doing the same with telecommunications. But in terms of transparency, I've heard blockchain compared to open spreadsheets. You know why is this so attractive to the finance industry?

Speaker 2:

It's attractive because there are many problems in the finance industry that have to do with clearing of transactions, that have to do with collateral being used multiple times. Many people that own a home they, you know, you know that you have to do with collateral being used multiple times. Many people that own a home they, you know. You know that you have to buy title insurance because somebody can come back and claim that they own the home because of old, archaic records, right, and city hall somewhere that may have not reflected the transfer of the property correctly.

Speaker 2:

Something like blockchain has the ability to completely disrupt and eliminate the need and the waste that title insurance represents.

Speaker 2:

Right, and there are countries like Estonia that are using blockchain to update their land records. It's on the blockchain, it's public and a change in government can't change that public record. Right, because you know it is a vehicle to do that. For. You know, mortgages are easy to think about and title insurance, but the same thing happens with, you know, oil containers coming across, you know, or other types of cargo, where that collateral and the insurance on it, having that reflected on a blockchain that all participants agree, can eliminate some of those problems, right, so it goes beyond just payments, which is the main use case we see today, is really tokenizing real world assets and there's so many things that you can do. It's similar to the internet right, it's an open ledger. Right, it's an open internet that everybody we've seen the proliferation of innovation and technology with that. Having an open financial ledger lets you do similar things with financial instruments, access and financial inclusion. That eliminates a lot of the cost of the current traditional financial networks.

Speaker 1:

So I want to turn to AlphaPoint, because AlphaPoint has been described as the leading provider of digital asset infrastructure of exchanges. Perhaps you can enlighten us with how you're shaping and powering crypto exchanges across the globe.

Speaker 2:

So AlphaPoint has been in the space for over a decade.

Speaker 2:

We're coming up on 11 years this summer, so we have a lot of experience just focusing on digital assets and enabling the trading, the transfer, the storage of digital assets.

Speaker 2:

So over the 10 years we've powered over 150 different exchanges, brokerages, digital wallets in over 35 different countries, and early on it was startups, innovators, right, somebody with a payments company that wanted to layer in digital assets into their business.

Speaker 2:

Now it's the largest financial institutions in the world. We've worked with CME Group, we've worked with RBC and Scotiabank, xp Securities and Chivo the first government to deploy this on a national scale and we've also recently started working with the largest retail banks in certain countries one in Latin America, one in Southeast Asia and what these institutions are doing is they're looking to add access to digital assets, which has always been AlphaPoint's core mission is enabling access and use of this asset class. They're looking to included side by side to their stock trading apps. You know, to their, you know other types of applications that they're releasing and servicing their, their customers, because they're seeing demand. They're seeing the demand from their customers and they don't want their customer to go sign up, you know, at a at a crypto exchange. They want that trading and that those assets to be stored on their platform today.

Speaker 1:

Well, I to at least the US. It seems like there's a lot of regulatory hurdles finally being potentially removed, especially around institutional crypto, and that must be a potential boon for so many companies to get active within this asset class. Would you agree with that?

Speaker 2:

Yeah, definitely agree.

Speaker 2:

I think the Bitcoin ETF, the spot ETF that was approved less than a month ago, is a really good indicator of that that.

Speaker 2:

Unfortunately, a court had to kind of force the SEC's hand in that matter, but it did find that this asset was not, you know, any more more volatile than other assets and commodities that are currently trading within spot ETFs. So we've seen quite a bit of an inflow in interest you know there's been over a billion and almost a billion and a half in just a couple of weeks of trading. That's occurred of interest and inflow into these, these ETFs. And you have some of the biggest players in the world in the traditional financial ecosystem of the BlackRock's, the Fidelity's, that are in some ways leading the pack of inflows. So we are seeing large financial institutions embrace the technology, also be rewarded for embracing that technology, and we're going to see more of that. We're going to see more financial institutions that haven't made a move yet that see, you know that see large players acting in the space and that they have comfort in the regulatory clarity that exists. So, yeah, we're excited about that development regulatory clarity that exists.

Speaker 1:

So, yeah, we're excited about that development. So, as you mentioned, you just celebrated your 10-year anniversary Happy anniversary. So you've been around pretty much as long as blockchain in general. Over the course of that 10 years, how have you seen the industry's attitude towards blockchain's change since you started this and pioneered so many years ago?

Speaker 2:

You know the early conferences felt like what I imagine the early internet conferences were like. You know it was a bunch of innovators and hoodies, you know, just looking to create exciting technology and build things. You know the ratio of hoodie to suit at the conferences has changed dramatically over the years and we think that's a good thing. We think that represents investment, that represents serious players that are creating, you know, real business models within the space and leveraging the technology. Right. You don't really monetize. You know the internet right, it's, it's. You don't really monetize. You know the internet right. You, you monetize applications on the internet. That's, that's what alpha point helps people do is how do we actually bridge the gap of this exciting new technology that makes all these new things possible? Let's make those things reality. So we're we're really excited about that evolution of financial institutions that wouldn't touch it, thought Bitcoin was a scam, believe that it's only used for nefarious purposes, and have evolved into understanding the true value of this, how it can be so helpful, disruptive, efficient, and are really embracing it now.

Speaker 1:

Well, I love the hoodie-to-suit ratio. It's fantastic, although 10 years later it has evolved into the Patagonia vest. So I think we definitely have seen some evolution in finance. So how do you foresee blockchain technology integrating with traditional financial systems in the next 10 years? I mean, you know, let's take a crystal ball out and you know, and to what are the challenges or what are the opportunities these types of integrations present?

Speaker 2:

So one of the integrations that's pretty clearly coming down the line in many countries is the integration of digitized currencies, right? So that's in the form of stable coin as it is today, but more and more central banks are also creating digital representations of their currency. You know the U? S the U? S is exploring it, many other countries are exploring it. So financial institutions that that deal with that national currency, which is pretty much every financial institution in every country, is going to have to figure out how to interact with that asset, right, how to store it, how to transfer it between parties, how does that interoperation happen? So we're seeing a lot of investment in that in different places.

Speaker 2:

As far as digital assets as an asset class that you know as commodities and things that people want to invest in, we're seeing institutions invest in that capability. Right, they want to be able to let you buy and sell Bitcoin and Ethereum and these other assets side by side with the current assets that they're making available for trading. So we see a lot of interest in inbound from financial institutions doing that, because that's one of our areas of strength. And then we see new financial applications right, the new Venmo, the new PayPal in different parts of the world, as well as in the US, we'll see that are leveraging blockchain technology, that are using digital assets for the transfer and also enhanced functionality. You know the decentralized finance is allowing you to lend, borrow, you know, in a secure and decentralized and transparent, you know public ledger type of way. So we'll see more investment, I think, in those areas as well, as that's become much more institutionalized and robust.

Speaker 1:

The biggest concerns among risk managers CROs within financial institutions is cybersecurity, so I would be remiss if I didn't ask is blockchain secure?

Speaker 2:

So blockchain, by inherently, is a secure technology. You know, not, not all blockchains are created equal, but it's effectively. You know, the blockchain is governed by how, how parties agree on the ledger and something like the Bitcoin blockchain uses mining. There's proof of work, is what that's called uses mining. There's proof of work, is what that's called. There's proof of stake blockchains that the participants kind of all vote on the transactions. But the very underlying nature, the way blockchains were invented, but was from cryptography, right, so the transactions are cryptographically secure. I can send you, you know, my Bitcoin or my digital asset and sign it with my private key and there's a public key and a private key pair and everybody can verify that my private key was used and the Bitcoin blockchain has never been compromised.

Speaker 2:

Right, there's been a lot of people confuse the. You know hacks or you know the news around. You know FTX's funds being stolen, right, that sort of thing the day after they they announced closing down. That is an example of operational security issues that exist everywhere. Right, we've seen that happen to. You know, twitter and lots of financial institutions have to deal with that. But that doesn't. That's not actually the nature of the security of the blockchain. That's the operational security of the individual or the institution that's holding those private keys. So there's a lot of great, you know security companies in the space. We pride ourselves on, you know, helping with some of the security companies in the space. We pride ourselves on helping with some of the security standards that exist. It does raise the bar when you have a digital asset, because when you have to secure that in a more robust way, you can't claw back a transaction unless it's like a private blockchain. Transactions are final right, so that is important to know, but the underlying security of blockchains is definitely there.

Speaker 1:

So we've made it to our final question of the podcast and we call it the trend drop. It's like a desert island question. So if you could only track one way in which blockchain could change capital markets, what would it be?

Speaker 2:

I really think that we are most excited about financial inclusivity.

Speaker 2:

I think that the ability to bring financial services that are easily available to those in the developed world, to those that have not had access, has greatest impact.

Speaker 2:

It is it is it's a really exciting area where, where you know those that have never have never had access to payments or lending or borrowing and they're paying these you know, very high 10% a day type of interest rates. So solving that problem I think we're we're most excited about. As far as the audience of this podcast, though, I would say that the most impactful will be the tokenization of everything. So everything from your car and commodities, gold we worked on a project with the Royal Mint and the CME group to tokenize gold and they were early for their time, but we're going to see all assets stocks, bonds going onto blockchains and then what you can do with those assets, how you can use them for collateral, how you can swap them between each other. There's a whole new world that opens up in financial markets. That's going to be huge and going to be quite an innovation and, in some ways, disruptive as well.

Speaker 1:

Well, Igor, I want to thank you so much for your time, your insights, and I look forward to AlphaPoint's success over the next 10 years, as clearly you have a technology that can change the world. Igor, thank you so much for your time today.

Speaker 2:

Thanks, jim, thanks for having me.

Speaker 1:

Coming up next week on Trading Tomorrow navigating trends in capital markets. We have a very special doubleheader episode where we'll give you a look at two different technologies speeding up capital markets. It's a can't miss and if you like our podcast, make sure you subscribe, comment and rate us.