An Introduction into Real World Asset Tokenisation

Webinar Recording and Transcript

Date: 22/08/2024

Host: Kevin Whitmore, Business Innovation Advisor at Callaghan Innovation

Guests: Pramodya De Alwis - Head of Technology - Interoperability at Futureverse

Webinar Length: 47:52

00:00:00 Introduction to Real World Asset Tokenization

Kevin: Okay. morena ki a koutou katoa. Welcome to today's session on an introduction to real world asset tokenization. So we're lucky to have Pramodya from Futureverse, who's head of technology and interoperability there to talk take us through some of these components. We've had One other session on RWA previously.

And so this one kind of fits in quite nicely with the rest of the learning series. But yeah, what we're going to do is throughout the session, if you've got any questions, just pop your hand up, we'll come off mute. So we'll make it relatively interactive and we'll have a more formal Q and A session at the end.

So otherwise I'll hand over to Pramodya .

00:00:44 Meet Pramodya : Blockchain Enthusiast

Pramodya: Morning guys. My name is Pramodya De Alwis. I've been working as a software engineer for the last six years in the Web3 space. I started off my career in the Web3 space in digital identity, working with projects like the Kiwi access card and the digital onboarding process, using DIAs and NZTAs, online verification systems.

I'm a blockchain enthusiast and a mentor, especially at work, part of my role there, and anyone who's interested in who needs help with Blockchain, I am happy to help them out.

00:01:17 Understanding Real World Assets (RWAs)

Pramodya: I've also worked with the Foremoon One Grand Prix in Melbourne over the last three years in the assets organisation programme, for special events that happen during the Grand Prix weekend So yeah, let's jump into what an RWA is real world assets it's a token representation of an asset on chain, and usually these chain, these assets are off chain, right, and they can be physical, digital, or database, but we, what we find is these are usually illiquid assets because they're off chain so they need to be kind of ramped on chain tokenized.

So they can become more liquid assets and move around on chain, which is much more efficient than the current systems out there. So examples of real estate would be real estate, art, even commodities you get anything in the real world that can be broken down into bite sized chunks. And for example real estate asset, million dollar real estate, it's quite a liquid.

You're not going to be able to sell a million dollar asset in like a few seconds or a few even days. But what you can do with on chain tokenization, you can break it down into millions of small chunks. And maybe you can sell 10, 000 worth of those and that's much more liquid. So you're making a liquid asset much more liquid.

So what do you need for RWAs, like tokenizing RWAs? You need the internet, blockchain, probably some lawyers. It is quite an unregulated business. Field right now. So you probably want to work with lawyers to make sure you're on the right side of the future law which would mean just doing things like KYC and AML checks on individuals that are you know, using your smart contract.

So just furthermore for why RWA is 16 trillion dollars of liquid assets are expected by 2030. So we want to move them on chain so we can even, we can collateralize it, take out loans, do all those good things you do in the real world, but slower, so much faster on chain.

00:03:19 The Role of Blockchain in RWAs

Pramodya: So, Why blockchain? I mean, this is a Web3 talk, but, so you guys will understand why blockchain, but just go through it to reiterate why we need it for web for RWAs.

So just transparent, everyone knows what's going on, it's easily auditable, which is super important for things like real estate assets. or commodities it's trustless. You don't have a middle man contracts can be read easily. It's the first time in history where you can do a physical like transaction, where I can give you an Orange and you can give me an Apple.

And there's not going to be anyone in the middle say, nah, you can't do that. That's the first time in digital plane, we can do that. And it's interoperable. Model systems can be working together. Using the same interface unlike the current financial system more and more about that later

But mostly blockchain is just another technology that enables us to do things more efficiently, right?

00:04:21 Current Financial Market Challenges

Pramodya: And I'll go into this by talking about the current reality of financial markets, right? So, RWAs can be real estate assets, but it could be bonds, right? It could be shares. Those are also RWAs, right?

And these assets you typically already purchase from platforms like Shady, Hatch, Robinhood, if you're in America. And what happens is the asset provider could be, in this case and they are providing shares into the open market, through the U. S. and these assets will run through these settlement systems and end up on platforms, ABC as versions of, they're not the actual asset, they're kinda like a representation of that asset with more IOU, right?

So if you are to KYC onto the platform, deposit your money onto the platform and purchase these GankStop shares on the platform, you're actually getting an IOU of the asset. So if platform A goes down, you've actually, you actually, At the mercy of the regulatory system, and you have to wait to actually get the value of those assets back.

By that point, maybe GameStop wouldn't even exist. Who knows? So, there's a lot of trust. In the current financial system, a lot of middlemen clipping tickets, like each arrow just shows at where these are taken really. And the settlement system is multiple, multiple settlement system middlemen in that little piece down there at the bottom.

So it's not, it's not super efficient at all. And the other thing is, You have to sign up for multiple platforms to get, to buy multiple different assets. So maybe Robinhood X GameStop, but maybe you have to go to a different platform altogether to buy US treasury bonds, right? So that means you have to get KYC to platform B.

You have to deposit your money into platform B. It gets locked into platform B. Technically they have ownership of your funds. And then you can go ahead and buy an IOU for those bonds, right? So, that's the current reality of the financial market. As you can see, it's quite cumbersome. And the asset provider at the bottom is left actually kind of they're not, they're not treated really well.

There's fees on top of fees and they, they actually get hit pretty hard. And a better representation, shares is maybe less so but gold, for example, is probably a good asset. If you're asset provider of gold and you tokenize, when you have an ETF for gold on the current financial market, you will be hit with massive fees.

So by the time you actually get. The capital required is actually a bit lower than what you expected because the platform, the settlement systems, they're all cutting fees from the actual capital invested by the users. Right?

00:07:30 Future of Financial Markets with Blockchain

Pramodya: So this brings us to the future or the next generation of financial markets using blockchain technology, right?

And RWA sits right there in the middle alongside other tokens and NFTs. Tokens would be like a native token like Ethereum or maybe Chainlink, for example. NFTs could be anything could be. A representation of a deed to a house. And RWAs alongside them. Same plane. Usually ERC 20 or equivalent so what happens here is the users create one wallet and they interact with a blockchain or multiple blockchains you know, with all the L2s and all the chains out there now.

And the asset provider interacts with one interface as well, which is the blockchain itself. So as you can see, it's quite. Much more simple process. It looks more simple. Obviously, it's complicated because it's more contracts, but actually when you look at things, it's actually simpler than the current financial market.

It will only get easier as smart contract platforms come out that, you know, management platforms. They come out or you can skip them as a platform and create your own smart contract by hiring your own engineers. So you have options with the current with blockchain tech, which you don't with the current financial markets, right?

So this is super important for RWAs because what happens is with RWAs, you have to have an off chain backer. Or maybe gold or real estate asset, whatever. So what we will see is a lots more assets providers coming on now. And what they don't want is to be treated like they did in the, like they are in the current financial markets.

They want to, they want to get their assets to customers for the lowest fees. So they can provide back higher yields to the customers because everything the customers invest, you know, 99. 95 percent of it actually goes back to as a provider, whereas some go into fees and onto chain protocols or whatever, right, which is much less than what is happening right now.

So KYC and everything can be done.

00:09:48 Investing and Tokenizing RWAs

Pramodya: And this there's no issue about that there's already platforms out there that do this And that leads me on to how to how do you invest so usually these online services that help you in buy on chain shares now on chain Bonds or gold what if what if you want that's backed by a real world entity that is regulated in the real world to hold those assets, right?

So how do you tokenize? If you are someone who wants to tokenize, Gold or whatever you can because you can actually tokenized fund of any size, because the economy of scale, or blockchain is very good, right? You can tokenize 1, 000 fund, or you can 000 fund. And it cost you pretty much the same amount.

But usually by this point, you will have to work with an expert in the domain to tokenize the assets. Obviously, blockchain is still pretty a bit more complex, but when you're working with, you know, this, with a lot of money, you're usually working with the experts in the field, right?

00:10:57 Regulations and Legal Considerations

Pramodya: So that leads me, leads me to regulations which is, it's quite absent at this point.

Um, there are very few regulations all over the world. The UAE has created an entire framework for RWA tokenization, and they're leading the world in that aspect. All I can see is the rest of the world will, you know, will try to follow as soon as possible because there's just so much demand coming out for it especially this bull market RWA is a hot topic and we'll only just, we'll only see it growing more and more and hopefully the regulations follow sooner.

Rather than later.

00:11:40 Q&A Session: Exploring Practical Applications

Pramodya: So, yeah, that brings me to the end of, I guess, the, the presentation but definitely want to open it up for questions since these sort of topics usually lend itself to more questions and answers sessions than what, you know, than the actual information I've just given you.

Luis: This is Luis. How are you? Good morning. Hey, good. Are you currently working on creating RWAs for, for New Zealand or for the blockchain?

Pramodya: With my in futureverse as we're not, no, not currently. I've been doing things in my personal time. Because I'm interested in just innovation on the blockchain space, so I've been looking at things.

New Zealand is a quite interesting space because we have real estate, you know, I mentioned real estate quite a bit, and real estate tokenization can be quite important.

Luis: Yeah, good, good. And any recommendation on, because, because I'm a developer and on my own, of course. And I'm interested. I've been watching a lot about RWAs, and I know that Chainlink is doing a lot on that field.

Yeah. Do you recommend going that way? Is there any other probably partner or company that is also helping on RWA creations?

Pramodya: Yeah. Yeah so Chainlink's actually quite perfect when it comes to the infrastructure they've been developing it for the last three years now and It does definitely help with the RWA aspect of things So they have off chain workers that can look at maybe, they could dive into APIs and look at maybe how much the value of your account is so you can back stable points, for example, right?

So that's what Chainlink is great at. But you can also do that with treasury bonds, right? So they, the cool thing is they plug into current financial markets and they allow the current financial markets to plug on chain. Which is, it's still leading itself to a bit of this area here, but it's a great first step to moving on chain and these guys will definitely take it because there's much more liquid capital on chain that is, you know, that can be moved from anywhere across the chains, right?

Yeah, for sure. Chainlink is definitely a good option. But it's a platform. It's like a, it's, it's a platform. Yeah, yeah, yeah. So you will use it as a, yeah, you'll use it to help you.

Luis: And the side of the real estate, is there something similar to oracles that is currently being used?

Pramodya: So real estate is quite interesting because real estate It's hard to manage through a system specifically.

So you, what you would have is you usually like in America, you'd have a Delaware company, you create a Delaware company for a property. They, they create a Delaware, I think it's a Delaware company. But they create it because of it's. specific, right? So you can't actually in America tokenize a house, right?

But you can tokenize the company through its shares and then move those shares on chain technically. So essentially you have tokenized the house. So the company buys the house and everything. So essentially you have tokenized the house. So this is what I'm, this is what, you know, just getting past regulation, this is getting, you know, just bordering on regulation, but, but it requires KYC and everything.

But it, it's possible, right? It's 100 percent possible. But with the current regulatory landscape, you have to work around it. I'm not even sure if it's being done in New Zealand.

Jake: Yeah, that was pretty much going to be my question as well around RWAs, is the regulation behind it and having a decent use case in New Zealand, Australia, because there's a lot of talk about it and there's a lot, I mean, Dubai's leading the way as such, but even how you turn, how you tokenize shares in a business, I mean, I don't know how you get to a point even legally to be able to do that, or like, I don't know, any insight into that, or is it just consult with a lawyer around how to. Kind of bit make it

Pramodya: well, well, this is the thing, right? Like, so tokenizing shares has been done now shares, if you're looking at the US stock market, they've allowed that. And I, I think it's a company called Daset. Can't remember now. Ari, it's called Ari. They do, they tokenize shares and it's has regulatory approval.

So it's being done based through, you know, using the regulations. They require KYC. But some of these guys kind of do it to start and they'd also figure this later. And the way they do that is by following a lot of the best stand, the best practices, like KYC or customers, like you would do in a normal exchange, like Sharesies or whatever, you'd be KYC before you can purchase any shares, right?

But the difference is these, these platforms actually let you own the share. So they have a RWA, kind of like a, like a, like using chain link, they would have a bridge, which actually shows you exactly how many shares they own or in their company owns. And they show you how much, how many shares are circulating on a chain and it should match all the time.

So, That's the most important thing that you, that they're doing, they're putting their best foot forward and keeping track of both sides and making sure they actually back the assets and they're not over leveraging and doing crazy things and having a GameStop moment where you get a bank run. So, as long as they're doing that, they're actually doing a good job.

I'm not 100 percent sure on the regulations in the US because I know they don't, they're not super crypto friendly. So the Securities Commission, for example, the shares of securities, you know, they yeah, it would say, I'm actually surprised that you got that through, yeah, New Zealand, I'm not even sure,

Jake: yeah, yeah, I mean, that's the biggest great area, which is, yeah RWA, it's great, like, I mean, I'm super fascinated by it, because we've just been approached to do it for a great It's like a business out of the UK.

But yeah, you just can't answer these things around regulation and everything around, like how, how it's viable, how you provide a bit of security to the people actually buying it. But it's kind of the nature of the Web3 space as well. Risk reward.

Pramodya: Yeah. Yeah. I mean the security is, is a good. topic to talk about because what happens is you're backing it through a regulated entity in the real world, right?

So when you all the on chain token is a representation of the off chain entity. And as long as you can back that reliably, I think you're in a very good spot. So as an on chain purchaser, if I know I'm buying a token that's backed by this regulated entity, I'm happier than if it wasn't, like if it was in some random country that I don't know about then I'll be, you know, I'll be a bit more worried.

But if you're, I don't know, if you're I wouldn't say a Kiwi because Kiwis have a partnership with UK, but maybe if you're if you live in India and you buy a UK backed share, I'm not sure what what legal right you have to. Get those, you know, to actually go after those shares, if they do something weird about it you know, take them away or, you know, the company goes under and the shares aren't actually backed and it's all messed up.

It's actually quite difficult. So, when you're working with real world assets, you are actually at the mercy of the regulatory regime, regime that takes care of those assets, right? Yeah, for sure. No, thanks for that. Yeah.

Kevin: How do decisions work around who gets? Access to the physical assets. So let's take a piece of art, for example, if you tokenize it and 100 people own it who gets to, what's the decision process around who gets to actually Hang that piece of art somewhere. Like what's the, the structure there?

Pramodya: So, so hanging the piece of art is quite interesting because the house, the house example works in a way that if people own a million parts of the house, you get a share from the rent.

of someone living in the house. Right. So the based on the fraction of the house you own, you get those shares, you get the rate. Yeah. So you could kind of do that with art. Maybe you're loaning it out to an art museum and they're paying the owners of the piece of art. I don't know, a thousand dollars a month.

And that could be shed back on chains as profit through some sort of off chain entity that handles that transaction, right? Kind of like you, again, you would have your real estate agent that takes care of the rental agreement for the house, for the tenant, and they just passed the profits back to the landlord.

So you could do it in that way. Yeah, that's definitely how I would do it. But. The whole point is the piece of art does have some intrinsic value to say that piece of art is worth a million dollars, then having a thousand shares would make, would maybe equate to a thousand dollars and it can be used as collateral to, I don't know, in a defi space, take out some sort of USDC loan, right?

So. You, you, it can go that far. By that is as long, that's only if everyone believes that piece of art is worth a million dollars, right? So it's, it's, it's, it's a toughest, it's a tougher thing to value. But you could have people loaning out money based on those shares in the future. But it's hard to say right now.

Kevin: Right. So instead of a traditional ownership model, it's more around an additional financial transaction to see who actually gets to. Yeah. Possess thing. Fair enough.

Pramodya: Yeah. Yeah. Yeah. The position is quite interesting because usually there'll be another entity that kind of, that owns it and is tokenizes it and sells it to make some capital.

Man, they, they usually only sell like 50% of it or something. There's a, there's quite a few platforms out there, especially with real estate where you can tokenize half of your house. and help you renovate your house. And then you chuck it on rent and then people on chain get half the rent and then you can slowly buy it back, whatever.

Jake: Yeah. I mean, it's the, I mean, largely it's to get access to investments that you wouldn't usually have. So like even the other day I saw invest in the Japan real estate market through RWA and you could just buy up a bunch of tokens and it goes up in value with the Japanese real estate that they've purchased.

But again, it's always that gray area. What if I don't get paid? You know, the the passive income that comes with it three years down the track who does that fall on? I mean, that's a big risk to the company that's issued those tokens. That's awesome. Again, it's just one thing unregulated. It just leaves for a very big gray area.

Pramodya: So that's true. Yeah. Especially when it comes to long term yield bearing assets, it's like, if you're waiting one to two years, you're waiting a long time. That's why I see like two to three to four months timeframes, like up to maybe six month timeframes being a better bet for people who are investing.

Especially with how the defi market works, everyone wants to quit games right now. So. Yeah, you could, I think there's less, there's less demand in those long term real estate projects versus investing into something that's more short term, like loans are actually a good RWA product Goldfinch does it, and they can be, yeah, they can go up to one year, two years, but some go up to six months and they're a good product for people to invest in with decent yields.

Kevin: Cool. Could you talk us through the efficiency piece a little bit? I think you kind of alluded to these processes being more efficient. Is that down to the resiliency of them or what's, what's kind of the, what's the main efficiency gain for, for doing it through a blockchain?

Pramodya: Yeah, sure. So I guess all these arrows, all these arrows show you can see all these arrows show places that Someone takes a cut, right?

So someone in the middle will take a cut. There could be, so when, when the user purchased the asset, maybe they spent 0. 5 percent purchasing the asset, right? And then the platform A, because it's working with filament systems, they'll probably pay them, I don't know, 1%, right? And there's multiple systems in here that they'd take a cut as well.

And then finally it gets to the asset provider and maybe they're left with 95 percent of the actual value, right? That was purchased by the user. So. This is because it's just simple economics, right? Simple systems. I mean, lots of systems working together. While they may work and there's lots of places they can break, they're still working, but that means people are maintaining them.

And when people are maintaining things, you have to pay for it, right? So when you, and you know, these guys, they definitely want to make a bit of money out of this, right? They've created the whole system. A quite complex system, and they want to make money out of it. And they've been, they've created the system with the technology they had in on hand, right?

But with blockchain, what you have is the asset provider, asset provider communicating almost directly with the user through a smart contract. Right. Asset providers could use a protocol. So there could be protocols that are built on chain and they will maybe take 0. 05 or 0. 5 percent depending on what protocol you go with.

And asset providers can launch their assets on chain with the protocol. And then the protocol would usually integrate with other marketplaces that plug into the protocol. Happens quite a bit with Aave and Lending, for example. And. These marketplaces would point users at or at this protocol.

Now you, the whole point is there's this choice, right? So that asset provider can actually go and create their own smart contract and go directly to users, right? Using the same interface that the protocol does. Right. And users can choose to go directly through these marketplaces that could or not take a cut, or they can go straight to the blockchain contract and make those transactions that way, right?

So there's choice in the system, whereas there is actually no choice in the, in the current financial markets, unless you have millions of dollars to go straight to, straight to the asset provider and kind of deal with them.

Kevin: I guess that choice makes sense, because my next question was going to be what degree is the simplicity, just the fact that this is a new system, so there aren't as many integrations and plugins and third party providers and things like that, which eventually will get built out and then make it more accessible.

You know, inefficient as a whole, but I guess that, that straight through, I guess is probably. The thing that, that, that creates a difference would be,

Pramodya: yeah, it's some, it's pretty much evolution, right? Like, yeah, maybe it could get a bit inefficient in the next five years, but it will be reeled back in really quick because there will be other protocols that are like that tell customers, Oh, no, we can give you better.

We can give you better fees, right? So people obviously go to the one with better fees, right? So the simple supply and demand economics here that make this a better option, whereas in this system it's ruled by certain parties who will never let go of their grip on that financial market, right? Whereas this one you go straight to the blockchain and you can create, you can innovate on the left, anyone can innovate on that layer.

A big thing is investments into like emerging markets, for example, you can invest into specific parts of the emerging market, but you need millions of dollars to actually make that investment. Whereas using blockchain tech through asset tokenization, you can actually, even if you have a hundred or thousand dollars, you can make, you can invest even partially into that trade, right?

Into something in, on even a piece of that million dollar contract. Right. So it's, it's giving power to everyone. Whereas this system only gave power to the people with already a lot of money.

00:28:18 Security and Tradability Concerns

Patrick: I guess the key here is between those two, two extremes, the two diagrams, the is it's a trade off, isn't it? So you go to the other diagram, You Nice and simple, straightforward, you have direct access to the asset provider in the process you're losing a few elements, which is security, you've already raised what happens if the asset provider doesn't provide there's tradability you know, how are you going to get access to an exchange to find other buyers for your You know, investment if you want to sell out.

So, yeah, there's probably a halfway house in there that provides, you know, both. I, I believe in this because one of the big factors with the traditional real world system is it does have those security elements and guarantees in place that you, you've got somebody who can, you know, action any problems.

problems. But the one of the major problems with it is time. So and, and access. So the exchange is not open. You've got to wait for the exchange to open, whereas blockchain's 24 7. So I think the benefits I see them as possibly quite different, but I do see a need for a settlement system for investors.

Or somebody. Acting in the middle other than the asset provider, who's basically the offeror. And once they've got the money, you know it's the nature of the world that they don't always look in after the investor's interests. So yeah, I think, I think you've, you've highlighted two extremes, but there, there needs to be something in the middle.

And I know Singapore is looking at electronic exchanges, Cheers. And I've seen a few real world token tokenizations where it's a key offering as part of the offering that there is a an exchange ability for investors. And whether you have a custodian acting in the middle to, to hold the assets either way or the money either way other than the asset provider until it's settled.

That, that's another element that I think, you know, needs to be considered.

Pramodya: Yeah. Yeah, no, that's, that's very true. You, I mean, there's, there's, there's a limit to how much we can program on the chain right now. That's not to say that it will change in the future, like a settlement system, obviously, if there's someone in the middle, a regulated party in the middle that deals with I don't know.

Let's say for example, you were shares and you're buying them in NZ. Is there a regulator party in the middle that deals with the settlement of those shares between the two regions? Could, could we token, could we put that chain can we put that party on chain and make sure they, by regulation, they have to fulfill the obligation.

00:31:22 Regulation and Settlement Systems

Pramodya: So, it's all about, we're still dealing with the regulatory. Bodies and making sure that they regulate the entities in each jurisdiction. So we, the asset provider is still, still needs to be regulated, right? So, so that they can't just run away with the money. And that's the only reason the real, this cut the current financial system works as well, because asset providers and settlement systems are all regulated.

Right. They can't do weird things without getting the full force of the law on them, right? Hopefully. So the, the blockchain system is something that is, that just I guess it is the marketplace, right? It is a place for exchange to happen, exchange of value to happen, whereas the law will deal with the asset provider on that side.

And make sure that they fulfill the obligations to ensure the on chain assets backed. Obviously this is where regulation now has to come into play, like RWA regulation, like, like they've done in UAE, has to be done in regions like New Zealand, America, everywhere, to make sure that they are regulated as RWA assets.

As a tokenized asset provider, right? So yeah, so I think I, I still believe there's a lot of regulation that still needs to be put into place because these are off chain assets, assets outside the realm of logic on chain.

Patrick: So, so the asset provider is regulated in New Zealand under the Financial Markets Conduct Act?

So it's offering a financial instrument effectively, even if it's once removed. So they are, they are regulated. I guess my point was you know, the investors have access to the blockchain and they can, you know operate that without the need for an intermediary. However, the if they want to sell their investment or their interest.

That's where the exchange, the marketplace comes into play and I know Singapore does, does this and possibly the UAE, I'm not familiar with their system. So there, there is a New Zealand, the, you know, the basics for it. But yeah, it, it, maybe we need to look at UAE and see how that can be transposed here.

Pramodya: Yeah. Yeah. No, that's for sure. I guess building an exchange on chain has been done, so it is possible, it's pretty much putting in buy and sell orders, right? That's what you mean by exchanging it. So the, I mentioned a parallel exchange set up by an asset provider. So it wasn't, it wasn't within the blockchain.

It was to enable a market to say, I've got my piece of this blockchain and I want to market it.

00:34:22 Global Investment Opportunities with Blockchain

Patrick: So the asset provider set up. And on the one of those projects we're also launching this year a digit exclusion trade partnership. Which is going to create a coastal network for a digital exchange via Singapore so that the Investors knew that they could exit the investment in the blockchain buying going to this Market and equally other Investors could go to Digital Exchange and say, what's on offer in terms of blockchain investments that are available on this market.

Pramodya: Yeah, no, that makes, that makes a lot of sense actually, like if you had gold, right, and you had lots of asset providers with gold, and you, you have it in the physical world, and you have it in the digital blockchain world, but you want, the users want to be able to take their blockchain tickets and actually claim the reward.

Yeah, that makes, that makes a lot of sense. It's definitely super important for this to work. Instead of one asset provider, there can be multiple different asset providers of the same. Commodity, gold or silver, whatever it is.

Patrick: Yeah. Yeah. And, and the digital exchange effectively operates as a stock market or a, you know, a commodities market or whatever.

But it's just digital. Yup.

Pramodya: Yeah. No, it's a I think Chainlink, then we talked about Chainlink before and they help plug the blockchain into off chain systems like existing financial systems I'm not sure if they have a part to play, their tech has a part to play in this exchange. That's probably highly likely it does but Yeah, because blockchains need to communicate with the outside world and that's something we need to get better at over the next two three years And I think that is the final hurdle before we move to full asset tokenization

Jake: just looking at this graph here around like the RWA, wouldn't that be distributed as either the NFT or the fungible token?

Pramodya: Yeah, correct. It would be RWA would just be ERC 20. Yeah, you're right. I'm just, I kind of just representing it as another token class. Oh, that's, but it would just be like a Yes. 20. Yeah.

Jake: Yeah, because I was just thinking about what you were explaining before, because I guess how liquid asset. which depends whether it's an NFT, you have to wait for a buyer or a Fungible token where it's backed by liquidity pool?

And you can pretty much exchange, depending on the rate that it is for the amount in that liquidity pool. So like I say, this huge opportunity, it's just the whole regulation stuff. Things like around, like if you were to If you were to raise a million dollars that went to New Zealand real estate, and the way that that was paid back was through the rent that comes through that real estate into a liquidity pool, just automatically, so it just keeps going up and up and up.

Or through the NFT where people could sell, which is backed by it. Like, all that exists and all that works well, but it's just, it's so unethical. wanted to sue someone or a payment wasn't made, like how, how does that happen? So yeah.

Pramodya: Yeah. I mean, there's, I think that would happen just like it would happen in the real world, even if so, if they forget blockchain, let's just say they create a platform to purchase, to fractionalize ownership of a house and someone doesn't pay.

Right. And I think you'd still go through the same. There is some sort of court process to make sure that person pays small claims. I don't know, could be small claims court, whatever. But there is some sort of court process to make sure that person is accountable. I don't think that part changes.

It's just the blockchain's just the easy way for everyone to transact, right? And exchange value.

00:37:58 Regulatory Challenges and Solutions

Jake: Yeah. I mean, that's the benefit of it is that if people whether it's an NFT fungible token form, anyone can access it basically from around the world, but and exchange it how they like, but yeah, it's very interesting, very interesting area.

Pramodya: Yeah, yeah, but it goes back to, I think, what Patrick said, which was, you have to go back to this exchange that lives in the real world that will give you something back for that asset. NFT's are a bit harder because they're unique assets, but so say, So if it's a gold token, you could do that, right?

Like one token represents one ounce of gold. You could do that. NFT is actually quite interesting because you can actually make them liquid. Now you can get lending from NFT. So they actually liquid assets as well. So everything in the same way, you can do that with anything that you can tokenize and back in the real world.

Kevin: Just talking through the regulation piece, what would be a good next step for New Zealand to kind of enter into this. I mean, we talked about the UAE having sort of comprehensive regulation and being maybe the only geography in the world that that does. Is there an interim step or do we have to go sort of full tilt to actually implement something properly to get How is the UAE tokenization working?

Pramodya: So it's currently unregulated so anybody can do whatever they want and then deal with the ramifications in the future. And it could be bad, it could be good, who knows. But I would say definitely look at what UAE has done and start from there. and figure out why they've done it and how it benefits the society as a whole and investors and this economy.

And just look at there's more reasons to do it than there isn't to do it. I'll say that much. But it's just putting in the time and effort, you know, getting the correct people in the room to actually put together a regulation like that. It's not easy. They've obviously worked with lots of I think they've worked with Mandarin chain on it and a few on you know, blockchain partners to make sure it works, but that's just how UAE works.

I'm not sure how the NZ government works with that in that regard.

Patrick: I think this ties back to an earlier Web3 presentation on the Singapore sandbox or sandboxes around the world. In other words, if you're seeking money from Joe Public in New Zealand, you're regulated, as I said earlier, by the Financial Markets Conduct Act.

So it is highly regulated. And the problem with New Zealand has been it is so difficult to get. Small amounts via that, that act that, you know we're looking at easier ways. And one way is to have a provider in New Zealand who can utilize a digital sandbox like they've got in Singapore, for example, as a, as a way in to make it easier to set it up and start to raise money.

But Thank you. Yeah, I wouldn't say it was unregulated, I would say it was highly regulated, if you're taking money from Joe Public. And it's a matter of making that easier, so that both for Joe Public and for the asset providers to make digital offerings. Don't have to get them bogged down in a whole lot of compliance and issue requirements.

Pramodya: So that's the off chain people. What about the regulation of tokenizing and putting it on chain? Is that, would you say that's regulated or is that like a

Patrick: No, that's the mechanics. So it all, it all comes down to follow the dollars. So, you know, it's getting the money that's regulated. FMA is not too concerned about how you do it, as long as they understand which of the four categories, you know, You know, your offer fits into, and those of course are equity, debt, managed investment scheme or derivatives.

Pramodya: Yeah, gotcha. Yeah, that makes sense. Yeah, because it is just the interface at the end of the day. It's nothing more, nothing less.

Patrick: Yeah, it sounds like it, you know, it has components of a lot of those, but derivatives might be, might be what we're talking about in a financial instrument context.

Jake: Yeah. I mean, I mean, it is, it's again, when, yeah, derivatives and when you tie it, it just, that's where it becomes really tricky. I mean, like, in terms of being able to like an example that we've even been discussing a way that you can, like governments could utilize it, for example, is around, say, New Zealand's net zero climate targets around 2050, for example, to be 100 percent renewable energy.

So it opens up a different avenue to find funds and to set up projects, like you just So, say you want to, you, you distribute a New Zealand, I don't know, a zero, zero token that you can sell anywhere through anywhere in the world. It's just a token you buy through an exchange or through your website.

You buy a thousand of it. And then you use those funds to buy solar panels on a particular land area and you sell that power back to the grid. And then those, then what you're selling back to the grid goes back into the liquidity pool so people can exchange it when they like. But it'll be speculative of when the value will really drive up.

So they hold, people cash out early when they've just doubled. But then that opens up. Basically, anyone to be able to invest in New Zealand renewable energy. And so rather than just relying on our national investors or just the share market, you know, it opens it up, but I mean, it's a very loose example, but what I'm saying is that we should just invest in it.

Yeah, you can use it. But again, it just becomes that regulation around who's accountable. You're using overseas investors, but yeah, that's the thing. It's one more easier. It's just. To be able to transact.

Pramodya: No, I think you hit the nail on the head right there, because it's about bringing in capital to a market that nobody else could actually access, because there were no rails to allow them to access it, right?

So, blockchain is a global way of accessing capital, and if you advertise New Zealand's solar panel fund, You know, as something people can invest in with this much yield coming in, people invested it and New Zealand benefits because now we have solar panels, which we got for a lower cost of capital then taking a loan out from the big world banks or whatever.

And it means the people who lent out the money also get some yield instead of it going back to the big banks. So there's like lots of people actually benefit from something like that. Yeah, sure.

Jake: Especially when you're going out of Africa, like giving access to home loans. Yeah, I'm raising through this kind of means rather than conventional banks as a way of people getting into houses Yeah, they're great real world examples.

It's just yeah when it becomes more regulated

Pramodya: Yeah, yeah, I mean the current loan the current way banks do loans requires Them to hold millions of dollars of cash, right? They usually do that by crowdsourcing it from their own customers. Now we're skipping the bank and we're going direct to the customers and investors so they can invest directly into loans, which is essentially what I'm trying to show through this, right?

We're taking away those middle layer systems and we're actually giving the user direct access to the asset through one simple interface. Less people in the middle.

Kevin: Yeah, I think that was, that was something we were working with back in the day, Centrality and Datacom and NewBank and some others was that reusable attestation process for AML and KYC, where you'd actually create an, an efficiency on outside the banking side.

Because the banks are spending millions of dollars internally each time they have to AML. KYC somebody take that away from them and you commoditize it where you, you, you systemize it. That's another way in which I think to Jake's point around opening up liquidity and making, bringing in a broader pool of people you can potentially create those, those efficiencies as well.

Pramodya: Yeah. That's it. KYC on multiple platforms. So KYC once. And that's it.

That's the digital identity game as well. Awesome.

00:46:44 Conclusion and Future Discussions

Kevin: Well, just conscious of time unless there's any other burning questions, we might wrap it up there. So thank you very much to Pramod here for the, for the today's session. We've recorded this, so we're going to transcribe it as well. We'll stick it up on Web3NZ.

But yeah, appreciate you taking the time and yeah, there's your details there if anybody wants to reach out. I think this is a conversation worth pursuing as well in terms of it's, it's relation to New Zealand and we will also be standing up some calls soon. So, so kind of continue these, these sorts of discussions.

The next one's going to be on digital identity. Just in the context of web three and what people are working on, et cetera. So now obviously Futureverse deep into this space as well. But the idea is to get businesses that are working across some of these topics communicating together moving some of these topics forward.

And then we'll also bring in some of the government agencies as well that are keen to engage. With what you guys are working on so we can, we can kind of get that cross collaborating going as well.