If you plan on developing digital asset infrastructure to serve mainstream financial markets, you need a deep understanding of both worlds.
Dmitry Tokarev has those bases covered. Mr. Tokarev is the CEO of Copper, a provider of digital asset infrastructure developed in partnership with institutions. Copper has released CopperConnect, a dedicated DeFi tool for crypto institutions that provides a secure connection for digital assets stored in Copper’s multi-party computation wallets with dApps. Investors can then lock their assets into smart contracts and participate in close to $13 billion of current DeFi liquidity.
Mr. Tokarev was working in traditional finance when a friend introduced him to cryptocurrencies several years ago. When he dug into its design, he immediately saw the benefits.
Dmitry Tokarev
“You realize blockchain is the only way to fix problems in the traditional financial services sector at the infrastructure level,” Mr. Tokarev said. “Once you understand blockchain and also if you know how the financial services infrastructure is working it becomes pretty clear where the future is.”
Early industry efforts to connect these two worlds missed the mark for several reasons, Mr. Tokarev explained. Knowing how traditional sectors worked, he knew there was no way the decision makers would commit to that type of dramatic change given the scant evidence and hypotheticals blockchain advocates were putting in front of them.
Yet companies and their products were valued as if JP Morgan himself was knocking at the door with bags of cash. They kept waiting for Mr. Morgan and he never came.
Now with the bull cycle driving infrastructure development, perhaps they can plan for Mr. Morgan.
Yet the risk remains and Copper is addressing it, Mr. Tokarev said. ClearLoop connects custodians and exchanges in a continuous loop with real-time settlement. Crypto’s history so far has been scarred by hacked exchanges, arrested executives and missing funds.
“In the 2020 crypto bingo we’re basically only missing Bernie Madoff and someone running a Ponzi scheme,” Mr. Tokarev said.
Users can delegate assets in custody to exchanges within the loop, including Bitfinex and Coinpass. They can place instant orders while their assets are secured offline. Trades are settled automatically.
Trading on exchanges without sending funds eliminates three problems, Mr. Tokarev said. The first is counterparty risk thanks to funded accounts in segregated vaults. The second is missed opportunity; no more lost deals due to slow settlement times. Finally, funds cannot be misappropriated.
Early purists must also have to get used to regulation, Mr. Tokarev said. Even though most crypto participants aren’t crooks, there will always be bad actors such as terrorist financiers and human traffickers looking for clandestine methods of moving funds.
“Security comes at a cost,” Mr. Tokarev said. “No rules, no security.”
For blockchain to inevitably go mainstream, people have to look at it as a much more secure and efficient method of doing what has been done for hundreds of years, Mr. Tokarev said. Traders made a business of running around with paper and maintaining ledgers. Blockhain does it instantly.
So look at tokenized assets simply as the newest way to do what has long been done but with the advantage of added liquidity. That will be welcomed by startups where maybe four per cent make it to a Series B. Yes there will be problems in the short-term as there usually is with new systems, but the rules will come and with it more stability, rules that will benefit retail investors. Expect growing pains but also remember in the world of high-tech, no one can build for 2029’s needs before releasing a product because no one knows what 2029 will look like and the moment will have passed you by.
Blockchain’s full impact will not be felt on financial services until those who conduct most of the finance get on board.
“The real financial technology, 98 per cent of financial technology, is what happens day in and day out,” Mr. Tokarev said. “We’re talking trillions of dollars exchanged every day. They’re not exchanged through a robo advisor, they are exchanged between the large institutions that are supporting other large institutions.
“All that right now is working very poorly from an infrastructural standpoint and blockchain is the perfect solution for it because it is the first time ever we can have a golden source of truth independently from anyone else.”
That source of truth can be as golden as anything but if it doesn’t meet Wall Street needs it will die out, so best have someone who knows both worlds build it, someone like Mr. Tokarev. He knows the needs of financial services, but also knows enough to realize the importance of smart contracts with no leaks. Make collateralized lending more efficient, allow for signing messages into smart contracts and the to-do list begins to shrink.
“These are challenges more than they are problems,” Mr. Tokarev said.
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