Will Blockchain Disrupt Traditional Finance? - Annelise Osborne | #538

Will Blockchain Disrupt Traditional Finance? - Annelise Osborne | #538

Join Stephen Sargeant, host of the Around The Coin Podcast, for an in-depth conversation with Annelise Osborne, Chief Business Officer at Kadena and author of 'From Hoodies to Suits.' Annelise has over 20 years of experience in finance, credit, real estate, family office, risk, structuring, governance, and digital assets. She was previously Head of Institutional for Arca Labs, working with companies to drive blockchain innovation through strategic partnerships and advisory services as well as COO of Propellr, a broker dealer in digital assets. Annelise spent 12 years at Moody's Investor Service in structured finance. She is a board advisor and university lecturer. Her book, From Hoodies to Suits: Innovating Digital Assets in Traditional Finance, hits shelves in June. Annelise holds an MBA from Columbia Business School and a BA in Economics from The College of William and Mary.


Host:
Stephen Sargeant

Guest: Annelise Osborne

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Episode Transcript

Stephen: This is your host, Stephen Sargeant, Around The Coin Podcast. We have Annelise Osborne. She's the Chief Business Officer at Kadena. She's also the author of a book called From Hoodies to Suits. You know, innovating digital assets for traditional finance. We talk about her early days working in commercial mortgage backed securities, and she breaks down about exactly what happened in the 2008, 2009 chaos with mortgage backed securities.

We talk about all the applications. You know, Bitcoin, blockchain, and cryptocurrency when it comes to traditional finance, and she goes into details as to what they're working on at Kadena and what they're helping companies with. But more importantly, we talk about the insights from her book. This is a great episode for anyone that's especially listening to this in traditional finance.

You might want to sit down and capture this in full and hear some of those insights and maybe even pick up her book. We'll talk soon.

Stephen: This is your host, Stephen Sargeant, the Around The Coin podcaster with Annelise Osborne, the CBO at Kadena, and, you know, a pretty critically acclaimed author, I might say. You know, you got Toronto in a frenzy when you came down with your book. They were all taken before the actual book signing, if I remember correctly, which is always a good sign.

Maybe not so much logistically as an author when you don't have books assigned, but you know, people have shirts, people have arms. You can definitely get some signatures there. Why don't you tell us a little bit about you and your background?

Annalise: Well, Stephen, thank you so much for having me on. I've been listening to your podcast and I look forward to having my book up there on your lit on your like back shelf. I'm sending you one after this because you probably didn't get one in Toronto. So I, would, I worked in traditional finance for a number of years.

I worked a majority of my career at Moody's. Doing commercial mortgage backed securities. And then I left because I was kind of looking for more, more entrepreneurial work. Like, Moody's was fantastic, super great think tank oriented work. We created new structures, changed the price of borrowing with smart contracts.

Which is what Structured Finance really did. And then I got into a lot through a lot of board work. I ended up getting into crypto through board work. I was asked to join this regulatory task force for ICOs. I had no idea. Well, that's not true. I didn't really, I wasn't very familiar with ICOs. I'd heard of them.

I had an idea. And it was young, energetic lawyers that had put together this task force and the thought process of there's huge benefit with cryptos. There just needs to be some sort of regulation. I watched loads of podcasts. I actually watched, it wasn't podcasts at the time. It was just on YouTube though.

This was back in 2017 to 17, 18. And that's really where I learned a lot. And then the more you learn about blockchain, the more you're like, this is perfect for finance, which is kind of where my experience was from a traditional perspective, right? We can talk about kind of how. The idea of Bitcoin, like in 2008, how that came up when it was the world of Occupy Wall Street.

But yeah, so that's how it kind of launched, launched my bug. I assumed other people were doing it. It wasn't, wasn't for me, but then the people that were actually trying to do traditional finance on chain for security tokens at the time, now I kind of call them digital assets. Really we're entrepreneurs or tech people and they had this great insight, but they didn't have the experience understanding structures of finance or regulation.

And so that is how I met a partner we launched in the space and that's, that's how I got to be here in 2018.

Stephen: That's awesome. You're not going to be able to skim past mortgage backed securities, even though you're on the commercial side. I think everyone on this podcast knew nothing about mortgage backed securities until, you know, the global chaos and collapse in the financial ecosystem back in 2008, 2009.

Talk about being in that field, because you were in that field, in that space at the time. What was that like? Did you have any kind of idea what was happening on the residential side? Did it make perfect sense to you? Like, of course that would happen if nobody's really paying attention. Bring us back to that time, because, you know, all eyes were on you and your sector at that time.

Annalise: I feel like we could have a podcast on this, but I love it because I've never asked about like MBS. So at the time, I mean, you've residential and commercial, right? If you think about commercial, commercial mortgages are our loans that are on offices, which have 10 year leases, which are investments.

You have them on hotels, which price every night, which makes it more risky. Industrial properties, shopping malls, which shopping malls were good at one point and then bad at one point because there were too many of them. Right? Industrial properties and multifamily. But they're all investments. So they're all generally leases in place for periods of time and they're, they're investment oriented such they have a cashflow coming in.

Residential is a little different. Residential are if I'm going to pay my mortgage or not, right? It's I decide if I'm going to pay as opposed to having a company and leases in place where there's actually revenue and cashflow. So I feel like there's, that's kind of a fundamental difference between commercial mortgage back and residential mortgage back.

Also, if you go at the time. So there was a, I assume everybody listening kind of understands in 2008, there was a huge crisis that really was based off residential mortgage backed securities. And a lot, there was a lot of fraud associated with that because there was a big push and admittedly there was a government push for people to own their own houses and there was an encouragement for lending.

So there wasn't, so new lending products developed and with the new lending products, there was some that had not, no income verification. So it was easier to actually buy a house because you didn't have to prove that you made money. You just had to figure out how much can I put down and lots of people were out there giving loans.

So it created competition. So you would get, you'd have someone say, okay, I'll give you 95 percent loan to value. Right, so I only have to put down a little bit, I can buy this house. It also increased the price of housing because there's more competition out there that's sh that, and I can put down less money.

So, I

Stephen: Did that also make it less risky? Cause hey, if the house prices are rising and, you know, you only had to put down a small amount and look how much my house value went up in such a short span..

Annalise: Well, also,

Stephen: ...did that out perception of like, there's no way I can lose here.

Annalise: Yes, and the way that it was looked at was all historical. Historically, there hadn't been many losses. So if you're looking at what's the risk and you're looking at, well, if we look over the last 20 years, right, there's been very few losses, but it hadn't gone to a period where you'd been so aggressive, there'd been so much aggressive lending, right?

And there had been fraud associated with it, which you kind of understand when you'd hear people who didn't have, full time jobs that were owning multiple properties because they kind of got these loans. There was also adjustable rate mortgages where people didn't really read the documents to understand that I only owe this much today, but.

That's because it's interest only and it's going to, or a low interest rate, it's going to readjust. So there was a big kind of fallout there. From the commercial perspective, there was a big, there was there was problems, but not the same because you had that income coming in. The bonds were worth very little at the time, which was a great time to buy them if you believed in the fundamentals.

If you think about commercial cycles, when, I was rating them, so like how do you understand the risk, And the risk generally is either that it will default during the term which means that the money that's coming in will cover, can cover that, or if it's gonna, if it defaults at balloon, because usually they're 10 years and they still owe money at balloon will they be able to cover that?

So that's a value perspective versus a cash flow perspective. The, it was interesting to try to figure out, okay, property values have dropped, but the only properties that are changing hands are ones that are in default already. So it's not the ones that have leases in place. Right? And our cash flowing.

So you have to kind of differentiate. You can't really look at current property sales in that situation. You have to understand that the property market is cyclical and at the time of, of this being paid back, you're going to have been through this period of time. That said, there were a lot of different types of structures that were tied to specific properties.

There was a large company that went under because they had refined, they had. Corporate debt that all came due, they had gotten short term corporate debt for cheap, and it all came due in a world where you couldn't refinance it. So the properties weren't bad, but the company went up. So there's, there were a lot of different, you know, different things that were happening, just different tides and flowing.

And it was super interesting. There was a lot of negative sentiment. Absolutely. I was not, I remember being attacked at a cocktail party once. As in like, you know, some people lost money. But it was, you know, it was

Stephen: And their house, right? They lost money in their house and a lot of other things probably.

Annalise: Well, the people that lost money at the house were not at this cocktail party in New York. But you know, there is A lot of people turned in keys. It was an interesting time. I'm more than happy to kind of go into it and dive into it further if you want to go. But I don't know.

Stephen: I was just wondering, is the, like, would the pandemic have been the equivalent at that time for the residential mortgage? Like, when the pandemic, you were talking about value and payments, when the pandemic happens and nobody's going to the office and companies are folding, would that be a similar, you know, would that be a similar time where the commercial mortgage backed security market was, like, kind of hit the same way the residential one once.

was?

Annalise: Um, The market was, the market was huge way back when, right? It didn't go like in 2007, the deals that were being done were huge like $10 billion. The deals that are being done now are less than a billion dollars. And so, so it's definitely more metered, right? It's more ideally de risked to an extent.

So, but if you look at kind of what happened in this, in the, in the recent, with the pandemic, offices were hit, before offices were kind of fantastic because if you had a good location and you had a good tenant role that, you know, They continue to pay, and now all of a sudden, you can have a good location, but maybe you don't have as many tenants, or they need less space, and people aren't showing up for work or offices.

I feel like New York, which is a huge office market, had fewer people going into the office than say, Dallas did or markets in Florida. So there's definitely stress on the office market, yes. Because you also have suburban offices, you have downtown offices.

Stephen: I love it. Thanks so much for educating us. I think those are interesting things to your point. I don't think anyone talks about them. And it's just great. I think the, you know, the message we want to show as I said before the show is like, we want to be conversationally dangerous in the sense that we want to know a lot about random topics.

Because they do come up in conversation, I think, who better to learn from than someone that was like, in the middle of the market, and I haven't met very many people that were even close to that market. But then you transition into crypto..

Annalise: Can I say..

Stephen: Are some..

Annalise: Sorry to interrupt. I have one thing to say about mortgage backed securities so people know what they are. The idea of mortgage backed securities, before a bank would write a loan and a bank would write say a hundred million dollar loan, right, to this office property, but if that loan defaulted, that's huge risk on the bank's balance sheet.

So what the banks did is they pooled all these loans together that would make up, say, a billion dollars of loans, And then they would sell them as bonds to insurance companies or different types of people that looked for that risk return profile. Because you can cut up the bonds that the senior bonds were less likely to default because the bonds, the losses would have to go all the way up the capital structure.

And then there's high yield bonds at the bottom that would take the first loss. So the idea of mortgage backed securities, to not give them a bad name really, was to sell So what they found was that they, they shifted the risk from banks balance sheets. So instead it, and it decreased the cost of financing because it was, it was less risk.

So people could get more competitive interest rates. So I do want to, I just wanted to share that with the, that's kind of the basic idea of why. Mortgage Backed Security started.

Stephen: Yeah, and you know, I don't know if there'll be ever a commercial version of the big short, but it'd be interesting to see.

Annalise: There were, we were in there. Yeah.

Stephen: Um, When you come from.. As you said, traditional finance into blockchain, what was the one of the first things you're like, oh, blockchain can solve this. I can't wait. Like there's always that moment where you're like, oh, I've been having this problem in traditional finance. I can't wait for something to come along and you get into blockchain and then I really want to jump into the ICO working group.

Annalise: Sure, so, for me it was, it was loans and debt. If you think about, because I've been working in that, in that industry and servicing, so there are problems. We did have problems where deals were paid down incorrectly, right? So, because there's a lot of human error there. But if you think about What a structured finance transaction is, or even a loan, that can all be programmed.

It's all math. It pays out when it's supposed to pay out. You can use conditional you can program money now. There's all these amazing things that you just understand smart contracts can do that make it not only kind of more efficient, lower costs, but fewer errors. And so for me, the idea of doing fixed income, And doing servicing even, which could be fully automated.

I recognize technology as a tool and that people are still needed, but I, that was my first, that kind of was my big, wow, like this would be fantastic.

Stephen: Do you think it's beneficial, when you think of smart contracts, do you think it's beneficial that you're actually removing the human emotion out of it? Right? Because think about it, if you're, you know, let's just say, take a common landlord tenant, they don't pay on time, the door locks because of the smart contract code.

But, you know, in real life, you know, the tenant might be going through something, and they need the help, or they need the extra Do you like that, you know, smart contracts for the most part aren't rigid? You know, our rigid actually aren't flexible or lenient, and they kind of, you know, it's easy to keep track of them because they are, you know, they are programmable versus, or you'd like the idea that, hey, if a loan officer is somehow feeling that they should help out somebody because they're going through a tough time or saw that they just lost their job, that there is still that flexibility in real life.

Annalise: So I don't think everything is black and white. That's kind of like what we're talking about. Right. And so I do feel like there's still a gray, like any, if you think about, we'll go back to mortgage backed securities, it's in a bond, which is in a trust. And there's not a person to talk to when it's in the trust, but there is, because if you have problems, it moves to special servicing and someone helps you out. So I do think, and I see technology as a tool. And so if it's, if you're doing a loan to someone, there are loans that are tokenized now figures doing a lot of home equity loans and lines of credit. I would guess I do not have one of these loans, but I would accept, I would guess that you're going to be able to talk to someone in periods of default, because honestly, it makes more sense for the lender.

The lender will, History shows that the lender will make more money if they negotiate, like they find out something together with the borrower, because they really just want the money back, right? So I do feel that, yes, there's a lot of efficiency smart contracts bring, and I do think there's also the human element that can still be involved even using this technology.

Stephen: I love that. So you're working with Kadena as a chief business officer. Yeah. The website says, you know, that you believe that Kadena is the only blockchain capable of powering global finance. That is some big fighting words, especially for a lot of our guests that are building Layer 2 protocols, etc. Why do you believe that Kadena is the spot that can, you know, really power the future of global finance?

Annalise: Stepping back a little bit, Kadena was Kadena was founded by two JP Morgan gentlemen, and they had created JP Morgan's first innovation lab. And they worked on the first blockchain they had worked on the early JP Morgan coin. And then they left to create kind of the best of both worlds with Bitcoin and Ethereum.

So Bitcoin being proof of work, Ethereum being programmable, scalable, low gas cost. But the way they created it is a web of chains. And so the thought process of scaling, so it's not all on one chain. It's, it's a web of chains that are tied together with nodes. So you can continue. So the thought process is you continue to add on chains and that's the scalable, so it's horizontally scalable.

And that's the idea of being able to not kind of slow down or hurt the network. Proof of work, which I think a lot of moved, again, away from proof of work has really proved to be very secure. We had a hack a couple of weeks ago and the system didn't go down, right? So we had, because. Because of the way that it's structured as proof of work.

So, I think that that is hugely beneficial. We, and the way that we're structured as nodes is that we have, we don't have the energy consumption of Bitcoin. It's kind of shared through all of the different chains. So that's, you know, ideally I believe in, I believe in this. It's great tech. Great tech doesn't always win because there's a lot more that goes into it than just, than just tech. Um Obviously huge is, is. There's so many different, things that go into that. One is, you know, working with your developers, making sure that you have an easy developer experience, finding people to build on chain, finding out kind of really your use cases. But that's the idea of being, you know, kinda globally scalable.

Stephen: And is there a reason why you started to create your own blockchain based on the Bitcoin model versus now we're seeing a lot of companies build on top of Bitcoin with DeFi. What is your thought process? Like, you know, how do you choose how to build, where to build, you know, Ethereum versus Bitcoin?

Obviously the security is there, but Bitcoin, as many will say, the scalability issues are also there. Yeah,

Annalise: Bitcoin's not programmable, right? Bitcoin, and I feel like Bitcoin, Bitcoin is amazing and outstanding. So we talked about kind of the, the crisis in 2008, and Bitcoin actually came out in 2008 as a peer to peer payment system. So it was a whole bunch of people against banks, right? Or the idea, there was a, it came out at the time, there were a whole bunch of people against banks.

But it was kind of how we can pay each other. So I feel like it was absolutely amazing and outstanding in what it created and offered kind of to the world. And then kind of moving on from there, there's other iterations and things that can be created like Ethereum, like smart contracts, like programmability.

So I do feel that yes, Bitcoin is obviously, Amazing for what it is. We're looking at building, Kadena went live five years ago. And so it's been around. It's just been a little bit of a, it's, it's been a little bit sleepy in the sense that it didn't have the business sense behind it, which is why I came along four months ago to say, okay, let's build and strategize and grow.

Because it was really, it was. Brilliant tech guys doing tech. And they were creating, it was kind of like, they kind of saw themselves as an innovation lab. And so, and, and also going back to the, the JP Morgan roots you know, Will had worked at the JP Morgan, Stewart had worked in a number of trading shops and even Apple before, but they created the chain for financial settlement.

Now there hasn't. We're working on kind of building and growing the chain. So we don't have like, we ha we haven't worked with the big players yet. We do have a number of projects we're working on now. Kind of figuring out the best way. So I also think about from a business perspective, there's a lot of great chains out there.

There's also a lot of, there's a world of business out there too. So I don't think it's one winner. I think there's a lot of, like, there's little differences with the different chains, but I also feel like there's, you know, there's enough business for everyone. So, I think that we, you know, we have, we are talking with people kind of for, for data projects.

We are talking for financial, we've got debt, which I'm excited about, especially obviously tokenized. You know, tokenized funds I think have shown off, and Stablecoin, right? So, I feel like the big use cases to take off in general for this technology, for the first adoption phases will be, will be Stablecoins, right?

Digital programmable money. Because there's so many use cases around the world. I would like to see kind of more being done in debt. Less in the U. S. is happening than there is in Europe, which I think is the regulatory gray ness where you can't be gray, you've got to be black or white for institutions to play in the space.

And then the last is really the tokenization of, of different funds and private markets and opportunities that acts, give more people access to investments, which is kind of what, which is really what the ICO was.

Stephen: And where does Kadena play in it? So let's just say Stablecoins, are you kind of building an infrastructure similar to maybe BVNK? Like, are you building something for the companies? Like, hey, we want to use Stablecoins to kind of power our international settlements. Like, where do you guys play in the ecosystem when you bring up a use case like Stablecoins?

Annalise: Sure, we are, we are early in our world of growth. I will put that out there. So, so we have looked at a number of different options. Stablecoins are important in different ways. So one there are other kind of private chains or chains that have worked with institutions out there that don't have kind of the liquid token as much.

So we do have we do have a liquid token in DeFi. Stablecoin is super important as well. And then from a cross border payments perspective, like I really, I think what JPMorgan has done is amazing and I expect more banks will come out and do that because they save so much money having an internal stablecoin depository receipts.

I don't think banks should create their own stablecoins because then that really goes back to the world of banknotes before we had a federal currency and I don't think that makes sense. I do think there should be more and I think there probably will be more competition too if you look at kind of, Tether doesn't really work in the Institutional world, there are huge use cases, obviously, for it.

USDC, I think probably needs a, we'll probably have a competitor, right? So it's not just, just those, but I don't think it will be I don't think it'd be algorithmic. I love Dai, we can talk about Dai and some of the first deals that we did when I, at my my first startup. But I think it will be like, I do think there'll be, there'll be some competition.

I know people who are kind of starting up stable institutional and base stable coins just to work with banks and payments, but look at, you know, you've got Swift, you've got, you've got all sorts of people that are looking at, that looking at stable coins from like a regular, from like regulators are looking at stable coins.

You have a lot of government, like government bodies as well that are, or, or people that are connecting securities or payments, right? FedNow is coming out, which is different. Because. That's not programmable and it's centralized, so I still think there's huge ruse for kind of decentralized money. So I've gone off on a little bit of a tangent, but we are looking at creating our own..

Stephen: Covering use cases that you're, that you are focused on, Akadena, is important. What are your thoughts? Because, like, we've moved from, like, ICOs, you mentioned, I remember security token offerings was a huge hit for, like, six months. Now we've gone into, you know, more digital asset or, like, real world asset tokenization. Different words, very similar in what we're trying to, you know, take physical or financial products and put them on chain. What do you, you know, what have you learned from the ICO working group to what you're seeing now in real world asset tokenization?

Annalise: Sure, so, going back, the ICO the task force, The gentleman that started it had written a paper that had gone, had gone viral. Well, coming in finance, finance, you don't want anything to go viral because you don't really want your name out there unless you're the CEO of a public company, because then you've done something wrong, right?

So you really want to keep your head down low. So it was super interesting to me, that aspect, to recognize there's a huge world out there. And there's this huge, and there's this demand for investing in early stage tech projects because they missed the tech boom. So these are retail investors that wanted to come in and have the opportunity to partake in, in essence, venture capital.

And so that was super interesting. To me, from an eye opener from the investment side, and then kind of from the company side, if you think about it, it's, so an IPO, you have a very, you have an advanced company that is, launches to be public. An ICO, you have, you and me have an idea and let's get together and launch something.

So strangely, not everyone that launched things actually were able to create that idea or create it into a business. I do think, I do think there was fraud, but I also think there was, there was people were inexperienced in business and didn't know how to do it. Right. And so I

Stephen: Similar to what we saw with NFTs, right? They said they were going to make comic books and video games, but if you've never done either of those things, you really don't realize how hard it is.

Annalise: So this is why I think kind of hoodies and suits. We need, we need the experience and we need the innovation and the ideas, right? And that, that tech prowess. So, so I do think kind of from the ICO perspective, for me, it was an eye opener about how global the world is out there and investments. And if you look.

You know, you look now at where the wealth sits, it's globally, it's 51 percent retail and it's 49 percent corporate. So now the retail money has out, is more than the corporate money. And so I think there needs, there will be more opportunities. For that retail sector, like people are trying to go after that retail sector and how do they do it?

They do it with this technology because they make it more efficient and it's easier. It's just, it's easier to add more people into the into the process, right? Onboard. And it's also easier to track. You can have lower minimum buy ins. So I do think that this technology, which is kind of the investments and the funds opportunity and the, you know, the world of private markets, right?

That people. If you look historically, alternative assets have really only been invested in by the ultra high net worth within the retail sector. And if you look at sorry, I'm going off on another tangent, but BlackRock shared the ultra high net, or the, no, family office investment strategy, right? How family offices are investing.

So we grew up learning 60 40 stocks and bonds. Now, BlackRock's 60 40 alternative and traditional, right? So 60 percent is your traditional stocks and bonds and 40 percent is your alternative. So that is how you generate wealth. It's not just the stock market. And so I feel like to do that, it's hard to do that using the systems today without this technology.

Stephen: I love that comparison, and this is not a, this is a podcast, this is what you have to do, you have to go down tangents and rabbit holes and ramble, and this is what I love to do, I'm like, oh, how did we get here? And it makes people like, let me go research that, you know, report, and that's what I love about it, but you did mention From Hoodies to Suits, which is your new book.

Talk to me about that concept, like, I think, like, how you came up with that, I think I know how you came up with it. I would have came up with it because, like, that's what it feels like the conferences have turned into. You know, I've been in this, you know, going to conferences since 2016. And it's like, yeah, hoodies and, you know, branded t shirts of your company.

So now I'm going, I'm like, oh, people are like serious. People are coming with their briefcases and they mean business now. Tell me about the concepts of what is the hoodie and what is the suit and how you came up with it.

Annalise: Sure. So my first, when I first got into the space in 2018, I met my partner who had a similar idea as I did about tokenizing, like the idea of tokenizing debt, right? And so we, he had a broker dealer already, and we kind of launched tokenized digital assets for security tokens at the time, where we were trying to create traditional structures, tokenized.

We were then going, then we started, you know, To merge with AirSwap, who had done a very successful ICO, parent company, Fluidity. And I'm bringing this up because we were the hoodie, we were the suits and they were the hoodies. And so, and we actually kind of moved into their office space as we were, as we were merging, it was just so interesting because I feel like you need both.

sides to make this happen with, make this technology happen for, for capital markets and and really upgrading finance. So that's kind of, that was a basic that I had learned earlier on. So kind of fast forward. I worked at Arca Labs. We had a tokenized treasury fund which was interesting in itself.

And I was, we worked also with institutions working on kind of partnerships, how do we, how do we develop programs and digital assets and different Opportunities together. And one of the banks had said to me, we have a season just after the FTX collapse. Which is also after the Luna collapse, right? But they had said we have a cease and desist, which is a legal term, but it wasn't really a cease and desist, but we have a cease and desist talking about digital, like anything, anything crypto or blockchain until next year.

And to me, that was, didn't make sense because. What happened with FTX was not a technology problem. It was a bad actor problem. And bad actors are in traditional finance as well, right? You had the Bernie Madoffs, which is very similar idea to what happened here. Even Luna, you had long term capital management, which was in 2018, which was an algorithmic by Nobel laureates trading shop that went under.

So, you know, anyway, it's not specific to this technology. And so that, to me, made me think, wow I think there's three holdups for institutional adoption. I think the first is education, understanding what this technology is and how it can make sense to people. to you or me. And then the other is regulation.

Like in the U S we need to have black or white. We can't have this gray area camp, an institution can't play in the gray. And then the last I think is interoperability, which is both from how do we plug into institutions, but then also how does the, you know, how do the blockchains talk to each other?

And so I thought I could do a different, like I could make a difference with education. Like that was what I, what I should do. And so I over the holidays, I sat down and I thought about like, every day I did a different, I start with a table of contents over the holidays and, and I was like, okay, I'm going to do this book.

But for me, the hoodies have created this amazing, what, 2. 5, granted it moves around, trillion dollar economy and world. And. They've gotten it kind of where it is today. And there's so much further we can take this, but I think the idea of the hoodie being the kind of the tech and the entrepreneur, we need the suits that come in, which are the ones that have a little more experienced understanding of regulation to come in and meet in the middle and kind of work together.

And so that was the thought process of the hoodies and suits. Cause I think they're both very important in making this happen. And I don't think they either can do it without the other. And so I tried to write a

Stephen: I ask you, do you think the hoodies approached it a little bit differently? Not wrong, but they approached the industry because remember they came in saying we are going to disrupt traditional finance We don't need intermediaries, and then they kind of realized like hey in order for us to operate our business We kind of need bank accounts, and those are kind of the people that we told we were coming to disrupt Do you think that's where they could have probably used?

Some good suits at the, their, you know, boardroom table to kind of say, Hey, this is great. This is not so much disruption, but this is acceleration. Like this, even the wording that they use and their approach to banking institutions. Do you think that kind of put them back a couple of steps that we could have been a lot further if the approach was different?

Annalise: I don't, I don't know if that is the right word. If that's the case, if the suits came in too early, if the suits came in too early and you had an over regulatory idea of like, don't do anything, because that's, you know, if you ask a risk or compliance person, their first answer is always no, right? And so I do feel like that there needs to be a recognition of all this that can happen and look what we created.

And now, granted, it could be in another country and not in the United States because you're finding different jurisdictions that it might work in. But I do hear what you're saying. Yes, you kind of need, if you want to really grow, you really need to have a bank account because there are traditional rails that you need to work with.

But there's the whole DeFi world that has developed as well. And so that has developed, you know, granted, there's been some people that got into trouble at some of the bigger companies that were successful, but I think that kind of wouldn't necessarily have developed as much if you had too many hoodies in place saying, don't do this.

And so I think the companies going forward really need to have both. And I think you need to have both at that table, deciding which direction and what to do, because there are, you know, there are companies here that we've seen that are run by suits and I feel like, and they're, they're kind of suits and they've hired some tech people, right?

I don't think that works either. I don't think they're, cause you, it's kind of like an institution. How does an institution innovate? It's very difficult, right? I think it makes more sense to have innovation outside the institution that then you can bring in or buy. Because of just the checks that you have to go through along the way.

And I mean, it takes, what six to 18 months to bring an outside vendor into an institution. And so that, you know, the way that the technology is growing and moving that that moves too quickly. But I, so I, You know, I do recognize the needs for suits, but maybe it's fine that they didn't come in so early.

So I think there's a lot we can learn from what crypto created and little, you know, mishaps along the way that we can take into kind of growing the industry.

Stephen: What do you say when you know your traditional friends or you're at a cocktail party and If they're coming at you about mortgage backed securities, I'm pretty sure they're coming at you about FTX. And to your point, right? Whether they've lost money or not, it tanked the whole crypto industry. So what are your thoughts?

The traditional folks are like, Hey, look at FTX, Celsius, 3AC. That's why we're not talking about it. That's why we're not bothering it. What's kind of your counterpoint to that? Especially when you, you yourself are, you know, baked within the technology that I could end up.

Annalise: If you look at FTX, right, everybody loved Sam Beckman Freed, like he was very outgoing, gregarious, very smart. But he also didn't have checks and balances within the company. Right. And he was also young. So even though he had worked at a hedge fund, I feel like he was still a hoodie, which was also part of his, you know, his.

Identity, I think. And so if there were more suits involved, I think that wouldn't have happened. He was given an outrageous amount of money. And I think part of that was he was making money, right? They were doing well and other institutions don't want to be left behind. And so I feel like, and they're the ones giving the bigger checks, but there wasn't a board of directors, there wasn't risk and compliance, and there was no real kind of reporting that could be checked to make sense.

So from my perspective, this is why it is important to have both come through. And look at Bernie Madoff. Bernie Madoff was what was he? He was like part of the SEC, like compliance. He was, he was really big into like being seen in the industry. And so I feel like there's a lot of similarities with the two and obviously.

I would need to know more about Bernie Madoff and the setup, but did he have someone checking? Were there outside auditors? You know, I think that's why finance is the way it is for, for checks and balances. So that's my thought process on kind of Sandbank McPhreet. It's not, so, so another reason I wrote the book, there's no book, there were no books out there on capital markets.

There are books out there on crypto, on DeFi, on digital dollar. And so, And a lot of the books are textbooks and harder to read. But I think that the whole goal of it is to be educational and easy to read, but you also walk away with understanding, okay, I get the basics. And I think that's what like, that's what we need from an education perspective is like, Oh, this makes sense.

And there's a lot of things in crypto and tradFi that are very similar, right? Wallet is similar to an account. Like if you mentally, just to think about it, right? The idea of kind of keys and passwords and it's just a little bit of a different lingo that if people, and yes, there are. You know, it's like there's minutiae differences, right?

But the idea is generally the same, you know, DeFi really is, I think the private credit markets and, and kind of DeFi, I think that's one of the first mergings. And I think DeFi will merge into TriFi.

Stephen: Interesting. You talk about that merger, but we see like Bitcoin spot ETFs is like We're heavily into suit territory with that, right? Do you feel like there should be other entry, more decentralized entry points for people getting into crypto? Are we going too much suits? And we're kind of forgetting that we need a little bit of the hoodies to kind of figure out fun ways.

Like, I think the 2021 was like, More people got into the market because NFTs were fun to get into, they were easy. But it also forced people to get into Web3 and use MetaMask wallets and they weren't used to that. But it was helpful for getting people that would normally not be in Web3 into Web3. Do you think spot ETFs are kind of, you know, taking us back to more of the traditional route for access to crypto?

Annalise: Yeah. Two things. One, from the not recognizing it's Web3, I think a lot of companies and I think a lot of opportunities will be that way. It'll be almost a Web2 experience for Web3. If you think about PayPal and PayPal USD, the, having a digital currency where you trade immediately, right? Like I don't have to wait five days for a check to settle and I'll have that money that I can put to work today.

Yeah. Like. But if in that format, you don't really recognize that there's a wallet or that you're using you know, decentralized token, right? So I do think there'll be opportunities that way that will make, you know, we'll just make the world more efficient and no one will talk about the technology underlying it.

Because most people don't talk about like, how is, how is the worldwide web set up? Or how do my emails transfer? Right? It's this technology has kind of, because of probably the cryptocurrency and the Bitcoin idea, and You know, people are afraid of change that they see. I think that has gotten regulators concerned.

There's no other technology that the banks are required to report that they're touching. Right. If you think about cell phones or faxes or AI or even quantum, right? They don't have to tell the regulators, look, we're going to touch this, where they do with blockchain. Okay. And then back to kind of the ETFs and the idea, if you think about, people want access to alternative assets and investments and what I think the wrapped You know, the ETF is a totally traditional structure, but you're putting an alternative investment in there that now the world is recognizing that cryptocurrency is an alternative investment.

And we want to have a diversified portfolio. And ideally we want it not to track the markets because it didn't use to track the markets, but now it is more likely to track the markets. But that's the idea of if we can have, we can invest and we want some exposure. So. I feel like that's a very it's a very traditional structure that is recognizing crypto as an alternative asset.

But I will say people invest in, there aren't, there aren't as many investors as we would think yet, but it, but we will, if you look at the, if you think about that and think about that BlackRock 6040 alternative assets, traditional assets, and you think about the trillions of dollars that are in crypto.

401ks and retirement accounts, and if they're going to have a small fraction exposure to the alternative alternative assets of cryptocurrency, they're buy and holders, right? And so that's going to hold up more Bitcoin. And if you think about there's less Bitcoin trading, then there's more of a demand for Bitcoin.

It is likely that that is helping Solidify valuations for Bitcoin, where you think if there's fewer bits trading and more demand, it would go up. Just basic supply and demand, right? If all the Bitcoin ETFs are long term holders.

Stephen: Can I ask you one thing? When you write a book like this and the technology and, you know, the headlines are changing every day and you're looking for case studies and use cases. What's one thing you're like, man, it just missed the cutoff to the publishers and I wish I could still sneak it into a, you know, a bonus chapter, you know, a blog series.

What's one thing that you're like, oh, I wish I knew that before I finished writing the book?

Annalise: Biddle, right? That came out after. So when you write a book, it it takes Mine was only six months from when they finally edited it. Or, no, seven months. When they finally added it to actually come out, because, because I used a mainstream publisher who's been great, Wiley, and they and that was apparently fast, but for me it was slow.

But during that time, I think the last time anything could go in was kind of January. So the Bitcoin ETFs were just about, were just about to happen. ETH wasn't there yet, but it was kind of along the idea of it's going to. And but, but the idea of BlackRock, which is the world's largest asset manager, largest, having, stepping up and doing a tokenized treasury fund is huge because.

A lot of the I don't believe at BlackRock, and I could be wrong. I don't believe BlackRock was looking to be an innovator. I think they were looking to make sure enough people had done it, right? You have Franklin Templeton, you have Apollo, KKR, you've got Hamilton Lane. All these people have tokenized funds and now, and WisdomTree, right?

And now BlackRock is stepping in to do this. And so that is huge because. Because they are so big and they, they, other people will follow suit. So to me, that was like a huge step in the market. But look at J. P. Morgan is the world's largest bank by assets under management, not assets under management, by market cap, market cap.

And the next largest bank worldwide beneath them is half the size American bank. And then the next one, believe that as a Chinese bank. But it just shows you how much larger JP Morgan is than these other players and look what they have created and that's going to help propel them, I think, right? That's what you need is you need to stay on top of trends so you're not falling behind and you're not like Blockbuster or Kodak who really lost, you know, their opportunities or AOL and look at it, look at Google and look at AOL and

Stephen: is a, Kodak's a great example. Like, you would think, like, it's funny because they talked about, you know, how, you know, Japanese were, you know, when you looked at the richest men and there was a point where mostly of them were from Japan, you know, with the, with exactly that, right? Kodak and all the innovation coming out of that place and it changes every so often, right?

We're seeing Elon Musk now and Jeff Bezos, but it changes all the time.

Annalise: I'm with you. Stay abreast of what's going on, right? And don't fall behind. So you've got to try out, even if it's uncomfortable. They did a study. I actually have a chapter on change. They did a study and monkeys are better at change than humans. That's funny. But if you look at like all this technology there, it's, we're continually upgrading this right here.

Our kids grow up with a supercomputer in their hand, right? And that has more power than that, than when we went to the moon. And so I feel like, you know, we're going to continue and it's going to progress at a higher rate because AI also helps write code faster. So. We need people to check, but it's going to help, it's going to help increase innovation.

And we need to be more comfortable with change as the, as Gen Z and millennials are much more comfortable with change than kind of this older generation. And Gen Z and millennials are going to have all the money soon. So, and they're going to be running companies. So I feel like you don't want to be left behind and you don't want to not recognize that.

Stephen: And that was included that, you know, kind of this concept that although exactly what you're saying is right, you don't feel that traditional finance is going anywhere. I think that's true for North America. I'm in Canada, you're in the U. S. But what about places like Nigeria, El Salvador, where, you know, as you say, younger populations, they're moving further and further away from the traditional fiat currency, which is unstable.

Is there, you know, a possibility in 20 years you don't see people using, you know, traditional finance as much or like almost like now if I see somebody pull out cash, I'm like, oh my God, like who carries cash anymore to pay for a coffee? That's unheard of. You know, they have a wrist, they have a watch, they have, they have a tap.

What are your thoughts about that? I don't see my kids ever going into a bank to do a transaction like when my parents went in and we used to get balloons, you know, with, with their checks.

Annalise: Yep. No, I totally, I totally agree. And the world, especially with the coming generations, there's, there's developed markets and less developed markets. So we can talk about that, but, but, but your kids and banks, like, I don't think I've opened bank accounts online. It is so much easier in the fact when I have to go into a bank for something, I'm trying to think of what it like, I had to go into a bank for something at one point.

I think it was signatures for something like changing names on an account, but it's so much more efficient and people are used to doing this on apps, right? Yep. Yep. More and more generations are getting used to that. And I do feel the older generation, I do have a funny, we went to Alaska and I always think of gaming as being like my kids.

I have three teenage boys, right? I feel like they love gaming in Alaska. It was generally, we'll call them retirees. We went for my mom's birthday and my mom plays games on her iPad. All the time. There are different types of games. And you look around at the retirees in Alaska, they're all playing games too.

Anyway, so maybe they're still going into banks cause they like that in a personal interaction. But I think from our kids and the efficiency, we don't really need that. I will go also, if we're talking about kind of Nigeria, I do think there are places where there's been a lot of volatility in currency prices.

There's a lot of cross border payments. This is why digital money is like, this is why kind of the crypto. Stablecoins are so important. You save so much money using that as opposed to paying for a service. If there's been number, I don't remember the numbers off the top of my head, but there's been there, they've looked into this, right?

Cross border payments and the amount corporations even. So I'm thinking of like, you know, Bob and Alice, if, if Alice lives in Nigeria and Bob's in the United States and wants to send money there, it's, there's a huge, there's a huge cost to that. Also the idea of. Being able to hold something in a, not in a bank because, and I lived in Ukraine before, and I, so I know a lot about the volatility and people's lack of trust with banks because sometimes the banks would just close, you'd never get your money back, right?

And so there are, that, that does happen in kind of the idea of a, We'll call them third world countries. It's economies aren't as stable. So I do think the idea of holding Bitcoin or holding some sort of crypto is a store as a store of value makes sense as well. And so I think Nigeria is a little bit different.

I'm not as familiar with Nigeria's banking. But I think there's a, there's a lot kind of, you know, in Africa, in, in areas that are less wealthy. Also, not everyone has a bank account, right? If you go to some areas of the world, they don't have bank accounts, and how do they get paid? So then you need cash currency, or you need to have digital, but more people have cell phones now, even if they don't have a bank account, and so I feel like that's kind of where digital will help as well.

Stephen: and we don't have to go far, right? U. S. I believe it's 5 percent of the U. S. are under bank or unbanked. That's a huge percentage when you really think about the modernization, the open banking policies, the access to so much, you know, the access to many different banking institutions. That's still a huge number.

Before we end off, I actually want to talk to you, you know, the concept of hoodies and a suit. And I know this is probably not your intention, but it doesn't feel like, you know, women kind of fit in either of those categories. And, you know, as a woman that's received, you know, awards and recognition for being a woman in fintech and crypto, what are your thoughts?

Have we gotten better in diversity? Are we still feeling like it's a Crypto bro culture. You know, we've been to many conferences where scantily trust women and men to be quite honest, but are we getting away from this? Like, you know, crypto bro culture and, you know, what can we do to better get to where you think is a ideal place or an ideal where women feel comfortable coming into crypto?

Annalise: So I think that's a great question. I think that if you look at institutional, institutional digital asset groups, there's more women in those than there are kind of, kind of in the crypto scene, right? And I, where we have been hiring, it's hard to find women that are coming in to actually even apply for jobs.

I feel like from that crypto side. So maybe and more men own crypto than women. I forget, like it's substantially more men than women own crypto. So maybe it's kind of that risk side. There's also less women programmers than there are men from what I understand. I don't know the exact numbers. So, so yes, I think, you know, the, the openness of the culture, there are still like in finance, when they talk about guys going to strip clubs, I think that still happens in crypto when you hear some of these parties out there, which is not as, not as welcoming or inviting.

But I also think, you know, you, the people that will do the companies that I think will do the best are the most diverse companies. And I think of diversity in thought. Right? So that I have a different experience than whoever else has that. And then we come to the table and we reckon, we share our ideas and it kind of opens up the, the space.

I think the companies that are that way and the companies to have different ideas helps that you have different backgrounds, right? And different experiences. And it also helps that you are not, that you don't all look the same. Right? You don't all have the exact same experience. So I think, I think there is a, it does make a lot of sense to have diversity.

You know, both from, both from like having, having more women, but also having, you know, there's not a lot of people of color. There's not as many people of color as well. I've found I could be at least what I come across. So I, I do know that one of the organizations is looking to have like unmantle the panel to have more women..

Stephen: part of that association for women in crypto. Shout out to Amanda Wick.

Annalise: And so I think things like that are great to highlight it and to show it. I don't think it's, every little bit helps. I feel like every little bit helps. So highlighting women,

Stephen: that token 2049. I think if we can breach token 2049, someone internally messaged me, they're like, you know, it was even more crypto bro than last year, and I'm like, is that even possible for token? And I think they still have the best speakers and some of the best in the industry.

But when you're not having diverse conversations. Lastly, talk to me about, you know, we have a couple minutes left. Talk to me about the future of Kadena. What are you looking at personally? Like, what's interesting you? We lightly touched on DeFi or what's the acronym we should be looking out for? You know, RWAs and Real World Asset Tokenization feels like that was the flavor for 2024.

Are there any other acronyms or things that you're excited about? Yeah.

Annalise: So, I am excited on building. I'm excited on the idea. So the book was a passion project for me. It's not like, I don't think people make huge amounts of money on books unless it's a fiction that everybody, or it's a dating app thing that people read. But the idea of people understanding it, right?

And it becoming more mainstream and actually having programmable bonds and having more funds on chain and, and that. Really excites me. So the idea of being able to build I do also admittedly like, cause I'm more TradFi, I like, I love the DeFi side and watching that and the Deepin and all of these different opportunities, cause I believe you're really are tying kind of a traditional world into a digital world that way.

And all of them. So I, so we do have like, we have, so Kadena was, is a non EVM chain. We have our first bridge coming out next month, which is super exciting. We have a ZK bridge we're doing that's coming out January, I believe. And so just, just connecting with the, like within the industry I'm super excited.

Some of the projects we're working on, which are really kind of both working with, with institutions and kind of even levels below, even some fintechs, really just about creating the next generation of finance. So, I'm a believer in, you know, I don't think about it as disintermediation. I think about it as upgrading, right?

And I do, and I do think, but that said, I do think similar to kind of Google and Amazon, there will be large companies that come out of Web3 that are seen similar to the banks. I mean, if you think about BlackRock, it's not even that old. I think it began in the 90s. I could be wrong.

Stephen: And they're buying up everything. Like, I feel like, like, I'm surprised that like I'm eating a hamburger and it's not somehow owned an asset for BlackRock.

Annalise: invested in the companies that have made that happen. But like, if you look at the top data companies in the world, number one is IBM. And then Google and Amazon are in there in the top 10. That's not their main line of business, but they are kind of the web two companies, right? That have, have recognized.

Operates business opportunities and data is just one of the side effects of that. And so I feel like we're going to have that within our space as well. So it's those people that are solving problems that create, are able to create revenue lines too, because it's not always easy to create a revenue line in a decentralized open sourced world.

But I'm really excited about us growing. I'm excited about having more, having more traditional finance kind of on our chain, as well as building out the DeFi ecosystem, because I think you need both. Wow.

Stephen: I love that. Thank you so much. We are going to encourage people to grab a copy of your book. Although there's none left in Toronto, apparently, because everyone took them all, but We're hoping that we get a shipment soon to Canada. Thank you so much, Annelise, for having this real candid and great conversation.

And we're definitely going to encourage people to get a copy of the book, but also look out for you and what you're building at Cadena. Kadena.

Annalise: I really appreciate it. And I love all that you're doing. Love your podcast. Love your questions. So fun to talk to you.

Stephen: I appreciate you. Researching you was fun. As soon as I saw mortgage backed security, I'm like, I hope she knows I'm going there. I'm going there.

Annalise: I love it.

Stephen: Talk soon.

Take care. Bye.