Tokenizing Real World Assets | Robert Leshner

So obviously, like

individual stocks and bonds are going to be tokenized or issued for the first time on blockchains. From there,

you know, obviously every fund is going to,

you know, have the ability, you know, 30 years from now to be running with an on chain component. Um,

you know,

we're not limited just to T Bell funds,

equity funds like an S P 500 fund or a NASDAQ fund or you know, a real estate, you know, REIT fund or commodity funds or any type of fund, you know, can and will be issued on chain.

Bankless Nation, Robert Leshner on the podcast today. He is the creator of Compound. I would say he's one of the forefathers of DeFi, one of the original protocols for sure. Now he is doing something in the traditional finance space. At least it's uh a cross section of DeFi and TradFi. He's trying to bring $300 trillion in TradFi assets on chain. Uh not overnight, not immediately, but over uh some period of years to come. He's got a new company, it's called Super State, he's got a new product, tokenized T bills, and he's in a brand new location. So from uh Silicon Valley over to New York City. So a lot of new things for Robert Leshner on the episode today.

Yeah, he ended the episode with a prediction of ten trillion

real world assets on chain by the end of this decade in the next six years. Uh so in this episode you'll hear how he gets to that prediction.

What are your thoughts going into this episode?

I always uh really enjoy the real world tokenization conversations. Uh, this is actually the world I was in right before uh that I left to start Bankless. Um and one of the reasons why I left is because uh I thought it was super cool. It was like makes a ton of sense. There's all of this value that's not on-chain, and let's take the value that's not on-chain and put it on chain. Um, but the crypto native move fast, rebellious nature in me was like, oh, wait, this isn't really on-chain innovation. This is legal lawyer system innovation. I had talking to too many lawyers, too many regulators too often, and I just want to go play on chain. Uh, and so the on chain digital world moves very, very fast. Uh, the real tokenization, uh, real world assets world moves very, very slow because it's actually like on chain minimalism, but like legal system maximalism.

Yeah.

And like personally, not my vibe. Uh and so I had to go I had to go and leave that whole world to

Thank listeners. When I first met David, he was in the business of tokenizing houses. Like literal houses.

actual real estate. Yeah. So um So I know a thing or two. So this is where I got my um like my sharpened my my teeth and the security uh securities laws, which I know like a little bit more than than typical about. Uh and it always kind of like sparks joy with me just because like security

There's there's like lessons and and see this is why when we remember when we did our sparkly securities episode. God, that was a throwback. Um, it was really, really exciting just because there's like lessons about decentralization and principal agent problems and a lot of the things that we honest we run into in the crypto space. Anyways, uh, we're getting off topic. And Robert is taking this brand new world head on with his new project called Superstate. Uh, tokenized T bills is just the tip of the iceberg, it is the thing closest to dollars, which we know is a very successful on-chain uh real world asset. Uh, and then he plans on going down the long tail, tokenizing more and more and more things. So we start with a little bit of history. We stuck, we start, we talk to him a little bit about like why now of all times. We've tried this before. Many people have tried to do this. Um, why Robert is going after it now, and then we get into some of the more fundamental conversations about like why is this inevitable?

All right. Well, let's go down the long tail with uh Robert and talk about tokenizing real world assets, securities, T bills, and the like. But before we do, we want to thank the sponsors that made this possible.

Bankless Nation, Robert Leschner is the founder of Compound Finance, one of the very first functional DeFi apps on Ethereum that also kickstarted DeFi summer 2020. He's also a partner at Robot Ventures, where he invests in early stage crypto startups. And now, lately, Robert is re entering the game of being a startup founder, this time in the arena of the tokenization of real world assets. Many have tried, few have succeeded. But Robert thinks that he's got what it takes to bring off chain assets on chain. Robert, welcome back to Bankless.

Glad to be back on Bankless.

So, Robert, the asset tokenization, the asset securitization world uh was actually one of my first entrants into the world of crypto back in 2017 and 2018. Um, the security token year that was 2018 and 2019 got me through the bear market, kept me, kept me going. Uh, but ultimately that whole era of crypto flopped. Uh, why? Why didn't we have what it takes to actually take real world assets and put it on chain back then? What what didn't happen? And then eventually we'll get into why you think now is the time. But but first, like give us a little bit of history of like the uh off chain securitization, tokenization of assets on chain.

Yeah. So, you know, a lot of work has occurred over probably, I would say, the past six years to bring off chain assets, which, in my opinion, are just assets that are originally recorded, not on the blockchain. They're assets that are recorded in some other type of ledger, whether it's a spreadsheet or legal contracts or, you know, pieces of paper.

And

the goal is to bring them on chain where they

Are in a superior function over the way they used to reside. You know,

when assets are on-chain, as you know, most of the listeners here know,

they're more useful. You can move them around pretty much instantly. You can see a huge level of transparency into who owns an asset, what they're doing with it, how it works, what the rules of the asset are. And they're programmable. So people can build new things with those assets. And this began to capture people's attention, you know, in my opinion, probably going back to about 2017 or so, when smart contracts on Ethereum really began to take off. When people said, Oh, it's easy enough to make a token, you know, there started to be lots of tokens, you know, being um created around that era. And people said, well,

Either this can be a token that's created on chain for the first time, or maybe we can somehow make a token that represents

or takes its properties or value from an asset that's not held on the blockchain yet. And we start to see lots of experiments going all the way back. Um, you know, many different teams were trying to either tokenize securities or tokenize real estate or tokenize commodities.

None of them really came to fruition. The one asset that got tokenized incredibly successfully were dollars. Really starting in about 2018, we started to see the rise of stable coins. And stable coins are the first, you know, whether you want to call them off chain assets or RWAs or tokenized assets,

stable coins are the first assets where there was an asset held off chain.

And through a process,

the value of the asset was moved on-chain. So

there's many different approaches to creating stable coins. Some are, you know,

very different, but

USDC and Tether, I think, are the best example of tokenized assets where the asset is held,

but a US dollar, one dollar, is held in a bank account somewhere, and somebody is able to mint a token that captures or represents the value of that dollar. For those stable coins like USDC, the value comes from the fact that the stable coin can be redeemed for the dollar in the bank account. And there's this interaction where you can mint and burn.

the stablecoin, and there's a very true association to the underlying value of the asset held off chain because of this ability to mint and redeem

a token associated with it. Stablecoins, as most people are aware, have had incredible product market fit. It is

Without a doubt, one of the first true killer use cases of blockchains. You know, you can see it in the value of stable coins. You know, there's $140 billion of stable coins. People want them. And they want them because the format, the file format, so to speak, of that dollar is just better on a blockchain than it is in a bank account. You know, a dollar in a bank account really can't do anything besides sit in that bank account until you spend it. Um

the value of a dollar on a blockchain, it's

far more open. Um

you can use it in so many different applications. You can

You know, program it, you can, you know, send it around the world. You know,

it's just so much different than a dollar that sits in a bank account. And so,

you know, I view stable coins as the first

really clear example of an off chain asset being tokenized correctly. And that's sort of where the

in a lot of ways the narrative stops. Um, after stable coins, we really haven't seen any breakout success stories yet

when it comes to.

Tokenized assets. But I think that's going to change. And I think where we're now as a society is really at the beginning part of the next chapter, beyond the first stable coins. And, you know, when you asked like why hasn't it worked yet? Well, the world hasn't really been ready for it yet. You know, we're at a very early point of like infrastructure existing on chain for assets. We're at

a very early point of investors, you know, wanting an upgraded file format for their assets.

We're at a very early point of support for these assets, whether it comes from custodians or intermediaries. And, you know.

I think it hasn't happened yet because, you know, the world hasn't been ready for it yet. But really, you know, this is the beginning of what I see as the next chapter for digital assets.

I think illustrating the properties of dollars and why dollars so easily became on-chain assets, tokenized assets, uh will actually do a very good job kind of um defining the problem statement that all other assets will also have. Like dollars both on-chain and in the real world are highly fungible, right? The the form factor of a dollar, it's liquid in the real world. It's fungible in the real world. It can move very fast in the real world, and that it matches its properties on chain as well, especially the fungibility part. Um, as soon as we get beyond dollars, the less liquid assets, the less fungible assets, like real estate, definitely, for example, becomes and even bonds less less fungible, less liquid than true dollars, start to have some frictions when uh we are trying to make a digital manifestation of them on chain. Uh, and this is where some of the properties of tokenization starts to break down and why there's a lot more friction than just pure dollars, uh, especially when we're talking about like we have two ledgers, for example. We have some sort of um securitization in the real world. We have some sort of asset that exists in the real world, and we're trying to make a mirror of that in the digital world in an on-chain fashion, but now there's two versions of the truth. And squaring these two versions of the truth and making them be like as one to one compatible with each other is one of like the is the hurdle that um we are trying to get over. And that's probably the hurdle that most real world assets have not gotten over. Uh, this is kind of how I will like to find the problem statement. And could you like continue with that and just maybe even provide more clarity and color there?

Yeah, well, that's a great summary of the problem statement. Um, you know,

in some ways, the approach right now for the problem statement hasn't been a problem when you look at stable coins. Like it hasn't been a problem that there's

Separated liquidity between traditional markets, whether it's you know walking down the street to a deli or you know, sending money to someone online and crypto markets, you know, crypto formed its own liquidity for dollars incredibly quickly. You know, dollars on chain and dollars on exchanges are

unbelievably liquid. You know, the ability to convert between dollars and another currency like Bitcoin

has more liquidity than the ability in a lot of ways to convert between dollars and euros or dollars and yen.

And so,