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Speaker 1

00:01

Hey everyone, before we get into today's episode, I want to take a second to acknowledge Vouch. With over 4,000 startups insured from napkin sketch ideas to large IPOs, Vouch is the insurer of choice for crypto companies, including L1s, L2s, DAOs, protocols, and a whole lot more. Their exclusive coverages are enhanced for crypto, covering everything from regulatory defense to smart contract vulnerabilities. With Vouch, you're not just ensuring your startup, you are investing in peace of mind so you can keep on building.

Speaker 1

00:34

You'll hear more about Vouch later in the show. All right, everyone, welcome back to an episode of Empire. Super excited. We have the head of blockchain and Onix digital assets from JP Morgan, Tyron Lobbin.

Speaker 1

00:47

Welcome to the show, Tyron.

Speaker 2

00:48

Tyron Lobbin

Speaker 3

00:48

Thank you so much for having me. Super excited to be here. Trey Lockerbie

Speaker 1

00:51

Yeah, pumped about this. I think the best place to start this episode would actually just be very high level, and then we can go into some of the key things that you guys are working on. And I want to get like the why behind what you guys are doing.

Speaker 1

01:02

So let's start with just what is Onyx, and specifically, how big is this team? Why does it exist? Where in the organization, right? JP Morgan's massive enterprise, where in the organization does your team sit?

Speaker 1

01:14

And then I think that can kick off this conversation.

Speaker 3

01:16

Yeah, I mean, I realized that Onyx from the outside is probably this sort of nebulous, strange thing. And, you know, how does it actually relate to J.P. Morgan?

Speaker 3

01:24

It's actually a business unit within the bank. So we sit within our corporate and investment bank, which is where our markets business is, our actual IB is as well, all of our payments operations, our payments front office, etc. So we sit within the CIB. We actually, for legacy reasons, sit within our payments organization, which is why We have such a strong payments angle to a lot of the work that we do within Onyx.

Speaker 3

01:51

But it's really, especially from my perspective and the work that I do, cross-firm. So we don't just work with our CIB, we also work with our retail bank, so Chase within the US, and more recently with our asset and wealth management group. Onyx is almost 300 people. We're about

Speaker 1

02:08

275

Speaker 3

02:08

people. That is made up of product engineering, operations, legal, you know, really the gamut because it is a business and so we have to, you know, ensure we're operating as such. And within Onyx, we actually have 4 business stripes, so 4 sub businesses within the group. 1 of them is called Link.

Speaker 3

02:33

So this is focused really on information flows and specifically around cross-border payments. Then we have basically our value transfer business, which is JP Morgan Coin Systems. So you would have heard about JP Morgan Coin, and we can talk a little bit about that. And then we have Onyx Digital Assets, which is the platform that we have for tokenizing traditional assets.

Speaker 3

02:55

And then finally, our blockchain group, which is really everything to do with Web3. We focus a lot within, you know, what are the Web3-like innovations that are happening that we should be concentrating on as a bank and thinking about how we can be creating products around those specific solutions. That's what it is. I guess the other question is why, you know, why do we have this big group of people focus on these specific areas and blockchain as a technology?

Speaker 3

03:24

And that sort of goes back to when we started our blockchain group actually in 2015, just as a, you know, a small group of people, you know, it was really a handful, focus on new products and emerging technology. And blockchain was 1 of the technologies that we were looking at at the time, late 2015, thinking about how it could be beneficial or disruptive to JPMorgan. And through that, we actually embarked on a whole program of experimentation, ideation, analysis on the different areas of finance that this tech can actually either create real value for or completely change the way things are done. And so over the subsequent sort of 7 years, I think we did something like 70 to 90 proofs of concepts, some of them obviously that didn't go anywhere.

Speaker 3

04:21

Many of them actually have informed the work that we do today, though. And then in 2020, we actually decided that we had enough proof points that this tech was meaningful enough for us as a bank that we needed to set up an entire business unit around it. And that was actually the creation of Onyx.

Speaker 1

04:41

The biggest shift that I've seen, I'm sure Santi remembers this, but I remember when you guys had Quorum, right? And Amber Balde was leading that. I think that was maybe 2017 or 2018.

Speaker 1

04:51

And that was basically a private blockchain, right? That was a fork of Ethereum. The biggest shift that I've seen JP Morgan take with your guys' crypto strategy or blockchain strategy is moving from a private blockchain to a public blockchain. Right now, you guys are actually building things and executing trades right on Ethereum.

Speaker 1

05:08

Tell me about that shift from private to public and why that happened.

Speaker 3

05:13

Yeah, well, I would say that It's an in-flight sort of process. So we certainly haven't fully shifted to public blockchains. And in actual fact, the trade that you're referencing was the start of a journey for us that we really feel is the right trajectory in terms of moving towards public blockchains.

Speaker 3

05:36

But quite clearly since the whole FTX debacle back end of last year, from a regulatory perspective, that has become somewhat challenging. So for now, our work is very centered in the permissioned blockchain space. And we do actually use Quorum under the hood for our tokenization platform, Onyx Digital Assets for our JP Morgan coin work, and also for Link. However, we've been very deliberate about ensuring that we have this public blockchain nexus as a very strong strategy for us.

Speaker 3

06:10

And so Quorum is an important part of that mix. Having an EVM sidechain or a series of EVM sidechains means that we can write solidity contracts. All of our development uses the same tooling that you would use when developing on public Ethereum or Polygon or any of the other sort of EVM-based protocols. The work that we're doing is very much centered around how we can think about the future state where we can actually be much more focused on public blockchain.

Speaker 3

06:42

Once we have some things sort of proven out and those things are in addition to regulatory buy-in, focus on privacy aspects, obviously KYC and AML. And so we have a strong identity focus there. But even things like scaling are important in some sense as well. So I would say it's a shifting and sort of evolving process for us.

Speaker 3

07:06

But permissioned blockchains, you know, for where we are right now, and specifically from a regulatory perspective, are the means by which we can actually create value and show why blockchain actually makes sense as a technology for finance.

Speaker 1

07:19

Where does buy-in stop at J.P. Morgan for blockchain? Does it stop with you and the executive team is kind of like, ah, Tyrone's kind of playing in the sand over here.

Speaker 1

07:28

Does your boss like it? Does it go all the way to the top? Where does that buy-in stop at JPMorgan?

Speaker 3

07:35

I think that 1 of the reasons why JPMorgan is so different to almost any other traditional finance player globally, and why we've been able to make so much progress is because we've had sponsorship right from the top. I mean, Jamie Dimon himself is, you know, he is the 1 who has been championing from the early days that blockchain technology can be really impactful. Onyx itself, that is a business that has been created through support from both Jamie Dimon and the CEO of our CIB, Daniel Pinto.

Speaker 3

08:13

And so there is a huge sort of support base at the senior levels of JPMorgan around the work that we're doing. I think that mandate is something that has given us the ability, really, to, 1, have the early stage experimentation, but, 2, transform that into something where we can actually generate revenue for the bank and for our clients and obviously get cost savings. So as much as I'd like to say the buck stops with me, there's definitely people above me that are supportive as well.

Speaker 2

08:46

Tyrone, I'd love to deconstruct a lot. There's 3 different components that I heard you talk about that you guys are focused on. Maybe if you just give us a brief overview of what those mean, and then we can dive deeper into some of those as we go.

Speaker 3

09:00

I'll jump into the 4 aspects of ONIX. So we'll start with this problem that we have identified around payments, right, specifically international payments. And so when you think about it, there is not really a global payments infrastructure.

Speaker 3

09:17

There's a sort of mishmash of local networks that are specific to a country that in the most case work very well. But when you actually get into cross-border, they actually start to break down. And so the global financial services, and specifically payments infrastructure is really a connection of correspondent banks and different ledgers that are not connected. And this challenge means that when you're actually looking to make an international payment, it's a multi-day process.

Speaker 3

09:49

You know, it obviously has high fees. For anyone who's trying to, you know, send money internationally, it's not exactly the best thing you're gonna do in your life. And so really we looked at this and we thought, well, clearly, if you take a look at what a blockchain is, this shared ledger, this shared infrastructure, if you can have these international correspondent banks sharing that same information, having real-time visibility of the information associated with a payment, you can actually start to simplify a lot of what it means to move money internationally. And so that's really where a big focus of ours is on this link platform that we have.

Speaker 3

10:30

Then we come into just money in general. And here we're actually looking at the physical movement of money. Obviously, everything is electronic pretty much. But ultimately, you need to move money from my account sitting here in London to you all sitting in New York.

Speaker 3

10:47

And that again, sort of runs into the same challenge of there is not a global payments ledger or a set of infrastructure that talks to each other very seamlessly. And we're all very familiar with stable coins and just cryptocurrencies in general, and how it's so easy to move value when you're using blockchain technology. That's really what we brought to wholesale payments in the form of JP Morgan coin. And then on the tokenization front, here we're thinking about the financial markets in general, right?

Speaker 3

11:22

So when you look at security settlement, all of the post-trade activity that is involved in transferring ownership of 1 security from 1 party to another. It's an incredibly complex web of actors, participants. You obviously have broker dealers, custodians, you have central securities depositories. In some cases you have transfer agencies.

Speaker 3

11:46

All of these actors exist really to do 1 thing at its core, which is when I'm selling a share to you, those records basically need to be updated to say you are the new owner. And that is complex to do when you have this disparate infrastructure and these disparate players. And, you know, again, when we look at what blockchain technology can bring, this sort of shared ledger, and if you think about just any basic token that encodes within the ownership of that token, quite clearly that's a, you know, a model that seems very interesting and something that can be highly impactful to this idea of moving financial assets around. So that's a big focus for us.

Speaker 3

12:27

And then obviously all of the Web3 side of things relating to identity and DeFi, we think that those can be impactful in new ways that traditional finance has not actually been able to tap into just yet.

Speaker 2

12:41

How much of that is internal versus coordinating with other banks?

Speaker 3

12:46

I would say that, so 2 things here. 1 is obviously, you know, JPMorgan is a very broad set of businesses. We have markets business, we have a custodian, we have our payments business, we have an asset manager.

Speaker 3

13:01

What that means is we can move quite quickly by ourselves. We can actually prove out things because we have the end-to-end lifecycle. Of course, we're not here to just create a blockchain infrastructure within JPMorgan. I mean, that's unnecessary.

Speaker 3

13:17

We can just use regular databases. But it does give us the proof points to say this idea actually makes sense and it has moved the needle for us as a set of businesses. So that takes us to the second point, which is once we have a stronger idea around some specific solution, we can actually start to bring in other players as well. So the Onyx Digital Assets Platform, for example, has global broker dealers signed up.

Speaker 3

13:45

Goldman Sachs is on the platform. BNP is on the platform. DBS, for example. We have a number of others that we haven't been sort of public about, but also large asset managers.

Speaker 3

13:57

So BlackRock, as an example, you know, they are tokenizing or looking to tokenize money market fund shares through the Onyx digital assets platform. So it's very much a platform and our strategy is, you know, being able to do this for the industry and with the industry.

Speaker 2

14:13

Right. When you are talking to some of these broker dealers or clients about the benefits, or even internally with someone like Daniel Pinto or Jamie, what is the proof point, the ROI, tangible ROI that you tell them? How do you sell this internally? How do you sell this to the market of, hey, look, we're saving x amount of basis points per trade, or we can streamline operations and compliance by x percent.

Speaker 2

14:42

Maybe if you could just share some of the proof points around some of these pilots, it would be great.

Speaker 3

14:47

Yeah, and it varies, that varies by use case. So let me start by saying we're processing about between 1 to 2000000000 dollars a day of tokenized assets through our Onyx digital assets platform. Since we launched in

Speaker 1

15:04

2020,

Speaker 3

15:06

we processed almost $900 billion worth of assets. And so that goes to show the scale at which we can move assets and we can actually bring these new use cases to life. And the reason why in this specific case for what we're actually doing on the platform here is actually making it cheaper for our clients and even for JP Morgan to get access to liquidity intraday.

Speaker 3

15:33

So the specific use case is, you know, we have clients who borrow funds from JP Morgan during the day, you know, for whatever purposes they need. Oftentimes they borrow those funds on an unsecured basis, meaning they don't have to put up collateral. They're basically just drawing down on a credit line. But that can be expensive, especially for our bank and broker-dealer clients who ultimately would then have to hold some reserves on their own balance sheets to prove to regulators that in times of stress, if JP Morgan withdraws that credit line, they can still actually make those payments.

Speaker 3

16:06

And so that cost, that cost of capital is something that they have to sort of wear in some sense. What we can actually now provide is the ability for them to enter into an intraday borrowing facility where they are actually putting up collateral and being able to borrow against that. But they're able to do it using a standard financial instrument, a repo, a repurchase agreement, which is 1 of the most widely used financial instruments in the financial services market. But where this becomes a challenge to use in a regular way life is that a repo is not something that can settle in the same day, i.e., I can't give you assets as collateral and you give me cash.

Speaker 3

16:48

And at the end of the day, we do the reverse. Like I give you your cash back. With blockchain and specifically with smart contracts and this idea of tokenizing traditional assets, we can actually now do that. We can tokenize US treasuries.

Speaker 3

17:02

We can tokenize cash in the form of JP Morgan coin, and we can actually instantiate these assets as smart contracts and this trade as a smart contract. And now you can have very, very precise times as to when you're going to enter into the trade and when the funds are going to be returned. And so what that actually looks like specifically is a reduction in cost, right? You can actually show the basis points reduction.

Speaker 3

17:25

And we estimate that by the end of next year for our markets business, there'll be a saving on the order of like $20 million. So it's not like, you know, massive in the grand scheme of things, but it's not immaterial either. And so we use these 3 points to actually, you know, build out further use cases and expand into other asset types as well.

Speaker 2

17:45

And like that's internally, but like if you're a client where you're entering that repo facility, I would assume that there's also benefits for them in terms of flexibility or, you know, I don't know, maybe better terms versus working with another bank, I guess.

Speaker 3

18:02

Right, I mean, it's this idea of, can I get access to capital in a lower cost way? Can I be more efficient with my capital? Instead of having to lock it up overnight, can I actually get access to those assets today?

Speaker 3

18:16

And can I be more precise about how I'm going to be using my funding? All of those things, especially in a kind of tightening rate environment or in times of stress around liquidity become really important and actually impactful. And then the additional thing is this idea of added utility, right? All of a sudden, you can use your assets in a way that you couldn't use them before.

Speaker 3

18:41

And we're seeing this specifically in the asset manager community where, you know, we have asset managers like BlackRock who are looking to tokenize money market fund shares. And the reason why they're looking to do that is because they want to provide utility to their investors who are actually looking to potentially pledge those shares as collateral. Instead of redeeming out of the fund, going to get access to cash, now going to post that cash as collateral. The investors can just stay invested and use those shares in a way that they couldn't have.

Speaker 3

19:12

And so it's not only like the cost savings, but it's the additional utility that these clients are able to get and actually offer to their own clients.

Speaker 2

19:21

Just to give folks a sense of perspective on the number of, you mentioned this figure close to a trillion dollars, like up to this point. That's still a very small percentage of the aggregate flow that you guys are handling. But how does that trend line looked over the past couple of years?

Speaker 2

19:41

And how do you think about that evolution going forward in the next 5, 10 years?

Speaker 1

19:46

And also I'd be curious to hear, Tyron, how much do you, how much do you guys process in a day? Like, is it 5 trillion, 10 trillion? What is the magnitude here?

Speaker 3

19:55

Yeah. Yeah. So in terms of like the trajectory and the growth we've seen In the first half of the year, in 23, we processed as much as we processed through the whole of 22. So that is quite a significant uptick.

Speaker 3

20:11

And that's through a couple things. 1 is more clients coming onto the platform, but also clients seeing more value and actually looking to use it more frequently than what they were. I think we're going to see maybe that double through next year. The trajectory is fairly strong.

Speaker 3

20:31

You're totally right. This is still small numbers in the grand scheme of things. But I think the proof point is real. The fact that we have global clients looking to use these products, and in some sense, almost not caring that it's blockchain, They just want access to this new feature, basically, is a really strong signal for us.

Speaker 3

20:53

In terms of what this actually looks like from a magnitude perspective, so in the payments business, we process... So in the traditional payments business, this is completely away from blockchain, just our traditional payments flows, we process $10 trillion every day. And that's a big number. And I think this is also a reason why we have started to look at creating different types of payments products that are not quite stable coin-like.

Speaker 3

21:23

And by that, I mean, when we talk about JPMorgan Coin, what we're actually talking about is a blockchain-based bank account. It's a really bad name, JPMorgan Coin, because it's not actually a coin. It's just a blockchain-based account. And it means that it's a deposit, that represents a deposit liability from JPMorgan's perspective.

Speaker 3

21:45

And so, our institutional clients who can now access JP Morgan coin basically have all of the guarantees that they would have for any other money that they hold with JP Morgan. And that means that we can start to think about the scale of, you know, this $10 trillion of payments that we possibly couldn't get to if we were just implementing a pure, fully reserved stablecoin-like instrument.

Speaker 1

22:11

Tyrone, what are your thoughts on USDC? And it's obviously had a tremendous amount of success, but what are... It sounds like when I hear you talk about kind of tokenized deposits, that's almost a different take on how to build a stablecoin in a sense.

Speaker 1

22:24

What's your take on almost the pros and cons of USDC?

Speaker 3

22:28

I think USDC is obviously incredibly important for the crypto industry, right? I mean, it is in my sense, pretty much the killer app of sort of retail crypto, because it does solve the key problem of moving money and moving money quickly and cheaply. And we spoke a little bit about how challenging that is in the current infrastructure, the current environment because of this, basically it's very fragmented set of payment solutions.

Speaker 3

23:00

So I think having USDC and specifically having a reputable company in circle actually offering that solution now and other currencies, obviously they have Eurocoin, which is still growing, but it's a really, really important proof that this technology can make a real difference, and in this case, from a retail perspective. I think where, and this sort of thesis still needs to be played out, but I think where USDC is going to hit a cap is going to be at scale. So when I talk about the $10 trillion that we're processing every night, and I was looking this morning, I think the market, sorry, the 24-hour volume for both USDC and USDT is like $25 billion or something. That's like 400 times less than what we do every day.

Speaker 3

23:52

And if you think about having to fully reserve

Speaker 1

23:56

$10

Speaker 3

23:56

trillion to be able to make those payments every day, that's a lot of liquidity that you're taking out of the system. And that's, you know, really actually has a negative impact. And you can't really start to create credit creation like you can't actually enact credit creation and issue auto loans and mortgages if you have this huge balance of liquidity that's locked up.

Speaker 3

24:19

So I think that USDC has, you know, 100% a place to play. I don't know that in its current construct, it can play at the institutional level, which is really where, you know, I think a bank like JP Morgan comes in and starts to offer a slightly different product, but has the same same benefits.

Speaker 1

24:38

So what you're basically saying is, I think USDC is not for it's what you're saying is there needs to be a stable coin, but with a built on a fractional reserve system.

Speaker 2

24:45

Yeah, I mean, the common criticism of DeFi has been it's highly inefficient because you can't do this fractionalization. It's fully collateralized and attempts to do under collateralization have failed because it's sort of this civil problem. You don't know who's at the other end of the, you interact with Aave, you don't know who's on the other, the counterparty, right?

Speaker 2

25:06

So 1 of the things that I've thought about is, okay, what's it going to take for JP Morgan to settle stuff on chain with Goldman or with a hedge fund X or Y in a hybrid type of environment where it's maybe like a permission version of Aave where you're using a Switzerland L1, call it Ethereum, but you know your counterparty. Hey, if there's ever a dispute, the smart contract logic is very clear. So that, to some extent, allows you to do certain things that you can't with a traditional financial system, meaning things close on the weekend and after hours and whatnot. But if there's ever a dispute, you know who the counterparty is, you can go to court.

Speaker 2

25:50

Like credit has always throughout history been enforced with violence or perceived level of violence at the end of the day. So what's it going to take for you guys and for Goldman and other institutions to, do you think that that is likely the evolution where you guys end up tapping into DeFi? Or do you say, hey, look, no, that's going to exist on this for these kind of on the fringes, we're going to build our own with other financial institutions, use our network, but maybe tap into Ethereum through a sidechain

Speaker 3

26:22

or something.

Speaker 2

26:23

Like, how do you guys think of all that?

Speaker 3

26:24

I mean, what you're describing is almost exactly what we did last year under this project called Guardian with the Monetary Authority of Singapore. And what we essentially did was we created tokenized deposits, deposit tokens of both Singapore dollars and Japanese yen. We issued those onto the Polygon mainnet.

Speaker 3

26:48

We stood up a specific version of the Aave Arc protocol that has permissions in terms of who can actually access the DeFi pools. We created pools for both yen and Singapore dollars. And then we built in this identity system using verifiable credentials that all together showed how traditional financial services can actually interact with DeFi in a compliant way. Because as you said, like if you can get to that, if you can get to the transparency and trust that those protocols can offer with a persistent, highly available, highly redundant settlement rail like Ethereum, well, that has to be a better infrastructure than what you could otherwise have, right?

Speaker 3

27:33

And pretty much what we have today. And so the test was highly instructive for us in terms of working out how to actually use these pools, how to do this, as I said, in a compliant way. And it also showed us some things that still need to improve. 1 of them, you know, we actually hit this problem during the test where there was this massive NFT drop on Polygon.

Speaker 2

27:56

Yeah, the spike in fees was...

Speaker 3

27:58

Right. We had this FX transaction that was sort of like waiting there. Like, okay, let's up the gas and try and get this thing through, which is fine for a test, but you can't really operate at scale and you can't do anything that is time sensitive. We spoke about the repo product that we have.

Speaker 3

28:16

Those are very, very time sensitive trades. You actually need to settle at a specific time. And so scalability is important. Having the ability to not be impacted through the noisy neighbor problem is important.

Speaker 3

28:30

Privacy is highly important. There's obviously a big discussion in the community around privacy. And obviously, from a financial services perspective, we can't have the position where our competitors can see our trading position, for example. So privacy is 1.

Speaker 3

28:46

And then, clearly, the KYC aspect is something that we have to abide by from a regulatory perspective and ensuring that we're not enabling money laundering. So those are some of the things that need to come into being in a more robust way for us to actually be able to fully step into a public DeFi or public blockchain environment. But as I was saying at the top, this is actually why we have set ourselves up in the way that we have, because we do think that there is a path there and we want to build all of our products and infrastructure to be compatible so that we can effectively lift and drop. Yeah.

Speaker 3

29:24

I was going

Speaker 2

29:24

to ask you on the privacy stuff. I mean, obviously this has been a persistent problem in the industry, like, you know, front running is just a big problem and you don't want to ever show your competitor what trades you're doing and how you're doing it. Is there an active effort within the organization to create a solution around that?

Speaker 2

29:43

Or are you waiting for others to leverage zero-knowledge proofs or something where you can adopt and integrate?

Speaker 3

29:52

We've been active around privacy probably for 6 or 7 years now. So, Jason, you mentioned the Quorum protocol. Actually, in 2017, we were, I think, the first people to implement zero-knowledge proofs on an Ethereum blockchain.

Speaker 3

30:07

And we actually basically grafted the Zcash protocol onto Quorum to show that you could have these privacy-preserving transactions where you don't actually know the amount that's been transacted or who the parties are. That was a POC that was difficult to progress for a number of reasons, specifically around where zero-knowledge proofs were at the time. It was very, very costly to generate them, took a long time, hard to write the circuits, et cetera. We actually did some work a few years later, basically adopting the Zetha protocol, the Zetha paper that came out of Stanford, And we implemented something called anonymous Ether, which is more effective and a more efficient way to basically use as bulletproofs to prove privacy as well as maintain anonymity.

Speaker 3

30:58

And that was actually highly, I think, probably 1 of the pieces of work that we've done that was the most promising, but had a very high demand in terms of skill set. We just don't have the deep, very, very large cryptography teams internally that you would need to put that out at scale. So we've contributed that to the community that's like fully open sourced for people to go and build on. And to answer the question, we haven't seen anything just yet that can actually solve the problem.

Speaker 3

31:29

Very, very open and willing to work with people in the community who are looking at this because it is obviously foundational for us. But we just haven't seen anything that can operate robustly at scale just yet.

Speaker 1

31:42

What's your perfect vision for how identity would work in crypto, Tyron? Is it because I think the key is right, having an identity on chain while preserving privacy, which is much tougher than people realize. So what's your vision for kind of the perfect solution that you'd love to see?

Speaker 3

31:57

Yeah, I'm a little bit biased towards and maybe maybe sort of too much so towards verifiable credentials. So verifiable credentials, for those who don't know, basically now a W3C recommendation, which basically means that the W3C as the premier body for the internet standardization is recommending to use verifiable credentials for identity claims, et cetera. And basically, they are a cryptographic proof of something about you or something about your organization that is irrefutable.

Speaker 3

32:38

So if you tell me, or if I tell you I work at JPMorgan and I present to you a credential that says I am a JPMorgan employee, you can cryptographically prove that. You don't have to rely on me. It's all embedded in the crypto private key signatures. And so I think that verifiable credentials are very interesting for a few reasons.

Speaker 3

32:59

1, they do maintain privacy. So when you're actually holding a credential that you need to present to someone else, you're never really giving them that credential and you're never having to store it in some place that, you know, many people can access and that your data can sort of be put at risk through, you know, hacking or theft. It's also technology agnostic. So, and this is actually a really important point.

Speaker 3

33:23

The way I think that crypto becomes, actually has the step change in terms of bigger adoption and broader usage is more integration into the Web2 world, right? More integration into today's world. And this idea of identity and being able to sort of cross the boundaries, you know, I'm Tyrone Lobbin in the real world. I also want to be Tyrone Lobbin and prove that these are my crypto assets when I want to go and do something.

Speaker 3

33:48

I don't want to have this sort of bifurcation. Verifiable credentials have this nice property of being technology agnostic. And so I could use my proof of my name or proof of my address when I'm logging into, like, I don't know, my regular way bank account. And I can also use it when I'm trying to prove that I am a reputable person in this DeFi protocol and I'm good for the amount of money that I'm gonna be borrowing.

Speaker 3

34:15

So I think that something like verifiable credentials is important, but you know, the space is still emerging and there's quite a lot of research that's going on as well.

Speaker 1

34:25

All right, everyone wanted to talk about vouch again, our favorite insurance provider for crypto companies. If you are building in crypto, you have probably come to realize that contracts need insurance, partners demand insurance. And as a founder myself, trust me when I say you owe it to not only yourself, but your investors and your clients and your customers.

Speaker 1

34:45

And I'm not just talking about any insurance. Their exclusive coverages are tailored specifically for crypto companies that can address issues like protections for regulatory defense, recognizing DAOs as insured, addressing smart contract vulnerabilities and even covering the loss of digital assets. They're in it with you, whether you're working on L1s, L2s, DAOs, MPC wallet providers, building a protocol, and a lot more. So whether you're just scribbling your next big idea on a napkin or gearing up for a big fundraiser, maybe thinking about that IPO or an acquisition, don't leave things to chance.

Speaker 1

35:19

Get insured today with 5% off Vouch's exclusive coverage for Empire listeners using code EMPIRE. Think about it this way, with Vouch, you're not just insuring your startup, you are investing in peace of mind. Yeah, So a lot of what you're talking about are things that I think the front-end consumer won't see. They'll see it maybe in the savings or they'll see it in trade settling faster, but they don't actually use it.

Speaker 1

35:43

When you look at kind of what's happening across the industry, who is it Citadel? I think Citadel, Fidelity and Schwab are building that supposed crypto exchange. You have, I've heard of a couple of the biggest, you know, web 2 companies building their own wallets, kind of like almost a fork of what feels like Metamask. Have you guys thought about what a front facing crypto product from JP Morgan would look like?

Speaker 3

36:05

Yeah, we've actually thought about that a lot because, you know, and I'll sort of frame this from the point of view that within Onyx, we sort of have this freedom to go and try and work out like what that future looks like. And even if that future can be somewhat disruptive to our existing businesses, for example. But the way that we thought about this identity and sort of wallet space is actually that these things should all really come together.

Speaker 3

36:32

Ultimately, we think that if you could have a wallet that had both of your digital assets, your personal assets like NFTs, whatever the case is, as well as your identity credentials all in 1, you can actually start to get a much better usage of your value, the things that you care about the most in your life. And so we actually built a prototype mobile wallet that really brings these things together, brings together your NFTs, brings together your verifiable credentials, brings together your digital assets, and sort of showed how you could do illustrative things like, I don't know, take out a loan where the credit score was based on the credentials that you had in your wallet, and also the value of your crypto assets. So you could basically reduce your loan to value in some sense. So that's not a product that we've actually taken to market, but it's a very sort of strong, you know, sort of indicator as to how we think about these things coming together.

Speaker 3

37:34

And I think that that's where it's gonna go. And actually in the last sort of year or so, you've seen companies starting to put out, you know, digital wallets that are not just, you know, for crypto, but also some identity aspects as well.

Speaker 1

37:47

I'd love to zoom out and just get your take on just as someone who works on crypto but almost outside the industry, what is your view of what's gone right and what's gone wrong right now? And there are these big conversations happening in crypto, L2s, DeFi apps building their app chain thesis, things like that. Would love to just get your kind of zoomed out view of what you're excited about, what you think folks have gotten right, what you think folks have gotten wrong.

Speaker 3

38:13

Yeah. Yeah, And I mean, weirdly, although we sort of sit on the outside, we do a lot of work in blockchain itself. My whole team is writing smart contracts and dApps and building key management solutions. So I feel like we also come from a point of view of really understanding the technology.

Speaker 3

38:32

And that's right from the days when we built Quorum itself. I'm sort of like a little bit conflicted about the very, very high focus on infrastructure. Clearly, there's been a long time focused on scalability, building out all the L2 solutions. More recently, things like PBS for MEV and how you can actually optimize that whole flow.

Speaker 3

39:01

More recently, I think very helpfully, things like account abstraction come in. But I'm sort of a little bit conflicted about, is there too much focus on infrastructure and trying to do very cool technology things and not enough focus on use cases and actually trying to move the needle for people, really just make things easier. And I think that that's been a big focus for us internally. We have to generate revenue, ultimately.

Speaker 3

39:27

We have to show value, and that's not going to be through creating some really great technology solution that doesn't solve a problem. And so we've been forced to take the use case first approach. What is the actual problem that we're solving? How is this going to make things better for people?

Speaker 3

39:46

And then look to see what technology we can actually use to enable that. We spoke a little bit about this project Guardian that we did last year. We actually ended up implementing what people now call a smart account as part of account abstraction. This was really before

Speaker 1

40:04

4337

Speaker 3

40:05

had come out. We created this contract on chain that basically represented JPMorgan and held the funds for JPMorgan but didn't give traders direct access to it. Like we basically built in these rules that said, you have to prove by submitting a verifiable credential that you are an authorized trader.

Speaker 3

40:25

And all of those rules and the rules around limit checks were built directly into the smart contract. Now that's called a smart account and people talk about account abstraction, which obviously has been in the works for many, many years. So definitely not claiming that this is something that we created, but the point is that we actually started with the problem of how do we simplify for our traders, the ability to actually interact with these DeFi pools, as opposed to like, is there a cool technology sort of thing that we can create and try and retrofit that?

Speaker 2

40:58

So

Speaker 3

40:59

I think 1 thing is there's been a huge amount of innovation, but sometimes I just wonder, is it overly focused and overly indexed on infrastructure? But I also get why, right? I mean, you have to have something that scales, you have to have something that can compete with the likes of the large processing, like payments processing settlement networks.

Speaker 3

41:18

But I do think that we need to go more into use cases generally. And then, I mentioned some specific areas that I don't think there's been enough focus on privacy being the primary 1, at least from a traditional financial services perspective. Yeah. How do

Speaker 2

41:36

you, I guess on the use case discussion, this is especially common in bear markets, which is like, why are you guys building this? Like, where does it all matter? I haven't seen it.

Speaker 2

41:46

And I guess you can point to NFTs and you can point to stuff like DeFi and inclusion and access and whatnot, but not really back it up with meaningful numbers in terms of users. But an organization like JP Morgan, largest bank in the world, like you can roll this out and you have the distribution, you have the global scale. When you think about, you talked about the repo facility, you talked about Guardian, maybe just give us 1 or 2 other examples of use cases that may come within the next couple of years without giving the secret sauce, but just an illustration of what could be possible or we could be seeing down the road. I mean, obviously there's now a more renewed interest and perhaps line of sight into it being an approval for Bitcoin ETF.