Nov 29, 2023

SpoolDAO, which wants to help institutions enter decentralized finance (DeFi), has launched v2 of its middleware product.

Video transcript

Spo Dow hopes to help institutions enter decentralized finance. Joining us now to discuss the V two launch of its middleware product is Spool, lead contributor, Simon Shaver Simon. Welcome to the show. It's a real pleasure to be here. Thank you for having me. Thanks for being here. Now, we're talking about DFI products for institutional clients. First kind of lay the foundation here for us. What kind of demand are you seeing from institutional clients? What are they looking for from DFI products? What challenges are they trying to solve? I think that's a really big question, right? Because FIFA often seems like uh you know, solution looking for a problem. But in reality, what we learned over the past maybe two years where the entire market crashed, we saw, you know, rising rates, we saw really a shift in where liquidity flows was that those providers and those institutions that still want to get into crypto, want to get into defi that really care, know exactly what they want. So what we focused on was building a solution for asset managers, for wealth advisor, for banks, for traditional exchanges, for tokenized money market funds that really automates and takes care of all of their, let's say on chain fixed income needs. So we make a big effort in educating institutions in really digging into what are the technical needs, what the technical requirements are that they need fulfilled. And we found out that in the mutual fund space, in the money market fund space, a lot of these things can now also looking at regulatory frameworks around the world be done on chain and they want to do it on chain. Now, they don't know exactly how to do it. And that's where we come in. We basically provide a one stop shop solution for all on chain fixed income needs. That means, you know, lending, borrowing traditional credit markets, traditional defy markets, but also staking off Ethereum staking off other assets. Um Yeah, it's like long short strategies but also tokenized real world assets, right? So that's where for example, money market funds come in. If you have a tokenized French or German or any offshore like non-american jurisdiction, where fund shares can very easily be tokenized, those need to be managed, those need to be administered and those need to be, you know, 24 7 taken care of on chain. And that's really what we provide because we found out in one on one talks that that's what the industry needs right now. Explain a little bit here because this is where it it might be a little confusing. Um What is, what is being tokenized. I I it seems like that you're talking about fixed income, uh uh traditional finance uh products that are, are being tokenized. What are the regulatory issues involved with that? If you're tokenizing it and then you're providing an exchange essentially uh uh a decentralized exchange for people to do this. Plus adding in uh digital assets like Ethereum, as you, as you mentioned, to be staked, et cetera or, or, and as one dozen D five. So what are the, what are the regulatory hurdles for a lot of these institutions? Uh that, that face it? In other words, uh I if you're a traditional bank and your traditional uh uh entity that's being regulated, heavily regulated by a central government like in the EU or the United States. Uh What are your restrictions for using it? And uh the products themselves that are tokenized? What, how do you verify that these are actual that they actually have the products that they, that they claim that they have tokenized? Um You know, what, what are the restrictions on such uh products being uh exchanged on, on these uh o on your platform? I think you're opening a really big topic there, right? Like those are a lot of big questions. But I think the key answer here is that right now, there's a lot of opportunity for regulatory arbitrage. So what might be heard was an issues in one jurisdiction might not be the case at all. In others. So for example, in the two largest eu jurisdictions and markets in both Germany and France, we've had a regulation that allows you to issue securities with the repository for those securities. The registry not having to be in an analog form where you could use the theory Blockchain, for example, to um yeah, issue securities and that's been the case for 1 to 2 years now. So it's not really regulatory burd there. It's more like regulatory enabling to a large degree. So we've got partners, for example, from France issue money market funds entirely on chain. So basically, if you want to own them, you need to own the token or alternatively like a legal wrapper that makes a traditional paper based security out of the token again, but its native home, let's say is on Ethereum and not like with a traditional depository. So on that side within European jurisdictions and I think more and more also offshore, it's not that much regulatory hurdles, it's more a lot of enabling of um giving structure to these things that are possible. Now, the other thing that you said is um how do you know if those assets are actually owned, you know, if they actually represent the real deal? So that's like a mix then again of D I and Ofra and of C I where you have traditional register, fully licensed issuers, like one of our partners is a me too compliant, fully compliant bank within a European jurisdiction, fully onshore, fully regulated, chartered all of that stuff and they are building the entire earnings product, all of the lending, borrowing that's ongoing for all of the users. Everything that's simplified completely on top of school. So what we have done over the past year is develop the entirety of school version to the entire tax that in cooper operation with one of the top three capital markets firms in Germany, which is like the biggest jurisdiction, the biggest market and in Europe that works closely with the regulator in order to make sure that all of the features, all of the small tools that we offer for institutions are very clear in what needs to be licensed. Which license do you need? Which regulator do you need to talk to? Um Are you, you know, financial intermediary, are you a money manager? Are you an asset manager? Um What exactly do you need? Because you know, being licensed, at least in Europe is not such a big deal, getting a portfolio management license is not the end of the world. I think any serious institution can take care of that, but you need to know, right, the one thing that you need to operate successful business is clarity, especially on the regulatory side and we're getting closer and closer to that point. And what we've done in school really is go to the front work directly with those capital markets, lawyers that are also consulting the regulator that are really pushing, you know, what's new and what's going on on the regulatory side and provide all of that volatile knowledge directly to our partners and, you know, work in house directly with the institutions that trust and build on top of school. Are you working with uh any American companies? So that's a sad thing. Uh We started and worked a lot with a couple of American partners uh back in the beginning of last year really. But things have become so difficult that most of our partners um either went offshore and outside the US in different jurisdictions with different firms in, in the canines in Bahamas, Virgin Islands or they straight up, you know, put it kind of further away, said, let's do that maybe in one or two years, let's see how things develop, we'll stick for, you know, simply buy and hold, offering our clients the ability to buy Bitcoin to buy some Ethereum, maybe, maybe work with a centralized staking provider like Block Damon Ken and so on. But let's really be careful on everything that could be construed as financial services. So we've seen a really hard, which is why we are completely agnostic when it comes to jurisdictions for partners. But we've just seen so much demand in Asia and in Europe and unfortunately, a big slump on the American side when it comes to banks when it comes to institutions in general that, you know, we go where the need is. So it was just a natural move to focus more again on European and Asian markets, Simon. I'm, I'm curious schools uh is a dow structure. And as you said, you're working with institutional clients that are very much traditional businesses, traditional corporations. How are you entering into legal contracts? How are you working together? What are some of the challenges that you're finding come up if, if any? Now this is one of the things that I really enjoy in my role, which is, you know, exploring these new ways of doing things which most of the time are not very new, you just need to interpret things in a bit of in a new light. But in reality, we see ourselves a little bit like Linux, you know, like most of like our entire global digital infrastructure on the, especially on the server side runs on Linux, but there's no like for profit legal entity in the middle that takes care of everything. You've got a lot of people that deeply care and that really drive forward development. Then the U is very similar. We drive development, we work together with institutions, but we don't necessarily as a do because we're not really able to enter into legal agreements with them. We simply provide them the infrastructure to really create these products that they need. For example, a smart contract that takes care of all their own chain, fixed income, asset management or like one portfolio of another and so on and administers them. We provide them with the tools to with basically no code knowledge required, set those up within a very short amount of time and then they own the contracts. So it's basically us giving them the tools to be empowered to bring all of this in house, which would cost them countless millions to build. We know because we spent these countless millions to build infrastructure, this powerful, which really fulfills all these needs. But in the end, it whatever is produced belongs to the institutions. It's their own in house back end. Basically, we are there to support um we are there to hold the hands and to explain things to them, but they own it and that's a great thing. They don't need to trust. And that's one of the main reasons why I got into crypto and who are the biggest owners uh uh in the Dow who are like some of the top big owners. So, I mean, I personally don't know too many. I'm on the Discord server. I was one of the first employees of the Dell, one of the first contributors to the Dell, but I personally, I am certainly not one of the biggest owners of the Dow. Um There's a couple of people on the Discord, there's a couple of people in telegram groups of course, but most of them are anonymous and I don't even know them personally that that's one big thing. We don't have a big VC investment. We don't have any big centralized holdings. We raced through a proper LDP, a fair launch where copper launch pad back then. So we actually don't know our biggest donors, but we know them via aliases, not directness. All right, Simon, we are going to have to leave it there. Thanks so much for joining the show this morning and congratulations on the V two launch. Thank you so much. Have a great day. You too. That was school lead contributor Simon Sha.

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