Nov 20, 2023

Onyx by J.P. Morgan and Apollo recently announced they would be exploring tokenization in investment portfolios across blockchains as part of the Monetary Authority of Singapore's Project Guardian.

Video transcript

Good morning and welcome back to first mover. All right, Onyx by JP Morgan and Apollo recently announced they would be exploring tokenization and investment portfolios across blockchains as part of the Monetary Authority of Singapore's Project Guardian. This next company is taking part in the project. Joining us now to discuss is Axel CEO and co-founder Sergei Gorbunov. Welcome to the show, Sergei. Hey guys, great to be here. Great to have you here. Now, Project Guardian is exploring how blockchains can be used to manage large scale client portfolios before we get into this. Explain to us what that means and how this might be able to be implemented into processes already being used by traditional finance folks. Yeah. So essentially this has been a pretty successful proof of concept where Onyx by JP Morgan and a poll are going to build a system to coordinate and rebalance different portfolios of tokenized assets across different chains, right? And so the basic idea is that you can actually take a lot of the manual steps in asset rebalancing um that exist in the traditional finance. You can put that all on chain in a programmable way and you can automatically automate a lot of manual functions behind the scenes. So if you look at some of the reports um that has been, you know, produced as a part of the study is you can see that for a client portfolio of over you know, 100,000 clients, something like 3000 steps can be automated into one. And so all of that is thanks to the power of blockchains kind of compos and programmability that they offer. So why would you need to use this kind of a a setup instead of, you know, why, why do we need Blockchain to do this? And what are the regulatory pushbacks you face doing it? Given that uh there's still questions about what counts as a security for instance, but also just the idea that why do we need to get involved with Blockchain to begin with? Yeah, look like when I, when I was starting in an industry, you know, many years ago, I said that um it will be actually a very good outcome. If at the end of the day, we can take a lot of traditional legacy system that run on very old legacy code and rewrite them using new software primitives using new software stacks. And that's what Blockchain here offers, right? It's a new programmable composable environment that you can take that you can own, that you can issue assets on across different, you know, portfolios across different institutions, across different jurisdictions. And in a programmable and efficient way you can automate a lot of the settlement, a lot of the rebalancing and makes everything a lot cheaper. And the result of it is that, you know, less overhead for the companies that are managing or for asset issues, uh less fees for the end users. Right? And um, only with the technology like the Blockchain, you have this level of composable and programmability that's, you know, sooner or later it is going to slowly replace a lot of the traditional legacy code right now. Tell us about Axel's role in this project. Yeah. So what we have done uh at Axel is we actually connected um kind of onyx, right, which is a Blockchain by JP Morgan with the uh kind of providence uh Blockchain um and kind of oasis pro was another party involved. So they were responsible for tokenization of assets. And Axar in this um in the setup was responsible for cross chain communication and enable of this compos ability and you know, programmability of these asset functions. So Axar is the connector that kind of sits in the middle and then you have different blockchains that are, you know, responsible for either issuance of assets or some of the settlement functions. And Axar is the core infrastructure that facilitates the movement back and forth um of this information. You know, when we talk about interoperability and this cross chain functionality, uh security risks, enter the chat. Are there any security risks. When it comes to this cross chain functionality, when you're trying to settle these uh transactions, look like anytime you're using any type of technology, you know, there are risks and there are security risks, right? And actually what we have taken is one of the most thoughtful approaches when it comes to security, starting with the right designs at the programming layer with a lot of kind of audits with a lot of like bug bounces with a lot of application layer kind of security add ons that projects like Onyx or Apollo or Oasis can leverage to make sure they have the best security needs. Uh You know, it's true that the bridging and kind of a Blockchain interoperability sector has gone through, you know, ups and downs when it comes to security. But that's the result of, you know, a lot of immature technology being shipped um very quickly into the market. And um now with projects like Axa and the next wave of, you know, robust security and improbability at the core, um this risk can be mitigated and kind of minimized to the large extent. OK. So how do you see this thing actually implemented? Um Yeah, so essentially what what you have is that you have um kind of a an asset issue, right? So in this case like Oasis pro it can issue assets, you know, anywhere they choose on any Blockchain. So for instance, like Providence, right? And then you have other blockchains like Onyx and other systems, um you know, settlement systems that could run on other blockchains, right? And so now you have this powerful composer ability where the asset issue can create its own safeguards, it could create its own legal and jurisdictional assurances for when it issues an asset. But functions like settlement functions like Rebalances portfolios can live elsewhere and be managed by their own administrators, right? So how do you put two and two together is this is where interoperability comes in is so you can have the asset issues, the settlement functions, maybe the rebalancing functions live on different jurisdictions in different zones in different um kind of legal frameworks. But they all can compose with one another and act as they're all living in the same environment. And that's really the power of Blockchain and and kind of programmability is that you can have the shared environment uh through the programmable interfaces no matter where your functions are. And this is what a facilitates how difficult is it for them to do it? Is it uh you know, for, for the average portfolio manager or, or the like who might have to do this automation? Uh how simple is it for them to do it? You know, given their, their focus is not necessarily to sit there and do such coding. But I I would assume that, I mean, what's our interface like, what's the usability, what's their UX like, you know, that kind of stuff. Yeah, I mean, definitely, you know, the portfolio managers are not going to be doing coding, but, you know, a Blockchain is actually much easier to program a lot of these functions than any other legacy system. Right. You know, you know, you shouldn't use today but, you know, projects like open A I, right and chat GP T allow you to write solidity code. You know, it's still in the early phases and there is kind of a lot of security that has to be taken account, but it's actually much easier to automate a lot of those things with the Blockchain technologies given that you have kind of a sandbox where everything can interact with one another and become kind of composable in the same in the same framework. So uh maybe not the portfolio managers or themselves. But um you know, it will be kind of a couple of developers, maybe there is a pro team that build this uh kind of smart contracts behind the scenes and exposes very simple, you know, UX um on top of it. But for portfolio managers, you know, the benefit, it's all instant, you know, they can interact with any asset no matter where it lives. And it's a lot cheaper and it's a lot less labor intensive than if they had to go and do a lot of those things manually. So, you know, with advancements in the eyes, with blockchains, all of these things are becoming so much easier than they used to be, uh, years ago.

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