Episode Transcript
[00:00:00] Speaker A: Foreign.
[00:00:07] Speaker B: This is John Lothian. Eric Chen, CEO of Injective Labs and Mirza Udden, Head of Business development, recently joined John Lothian News for a podcast exploring the transformative potential of blockchain technology in financial markets. The discussion focused on Injective's efforts to efficient borderless trading environments, enhance exchange infrastructure and cater to the rising demand for digital assets, particularly stablecoins. Here is that interview.
How do you see blockchain technology revolutionizing traditional financial markets, particularly in terms of creating more efficient and boreless trading environments?
[00:01:00] Speaker C: So I think currently one of the biggest problem or one of the problems with the financial sector as we stand today has to do with a requirement or necessity for a nexus for any type of particular market or any type of particular venue. So what you create is essentially this hub and spoke system that the airline industry retired recently, where you have a massive formation of capital concentrated in a certain area that's not co located to to where a lot of these assets or equities are originated from, like the commodity markets for example. It's primarily situated within the US obviously and also London and other pockets of other continents. And what this kind of creates is an over centralization of access and also barriers to financial activity and at the same time kind of like extremely strong inefficiency when it comes to crediting and also cross border exchange and transfers. And that's where I see blockchain technology will resolve in the best way possible because what you're going to see is blockchain as this kind of like a borderless, also extremely unopened and decentralized settlement layer being able to serve a cross border and also like a globalized audience where they can record and settle all their activities on top of this platform without having a specific region kind of anchoring or like market anchoring.
[00:02:35] Speaker B: So the world becomes one region and we have a tokenized world in which to be able to convey value. How is Injective leveraging this? Can you explain to me the injective platform and how you guys are doing that?
[00:02:59] Speaker C: So what it does is through the interfacing of dapps or applications which can be customized or tailored to or it's a local restriction. It acts as the same type of liquidity and flow and this means that you can survey a certain demographic or a certain country or region of customers and users and at the same time you're capturing all the flows and synergizing them to like a globalized context. So for the flagship trading platform Helix as an example, basically it's almost globally accessible and it allows for all the participants from all over the world, whether it be institutions, individuals, to access the same type of market and for a lot of different other compliant offerings or a lot of different types of real world asset offerings. Everyone has a chance to onboard via a KYC layer or a permission layer in a globalized way. And all kind of trading within the same platform, sharing the same type of liquidity. And I think that is the most important thing. It allows for compliance framework to still be intact when you're doing all these trading activities, but at the same time you're getting the benefit of the globalized settlement.
[00:04:09] Speaker B: Can you talk to me about this permission layer and what that means?
[00:04:14] Speaker C: That is the RWA layer. It allows for kind of like a permissioned access towards a certain asset. And this is typically used for protecting or compliant with various regulations or different types of compliance frameworks around the world. And what this allows for is kind of this massive real world asset like space or this asset class to be able to issue a mint and transact on chain in a completely revolutionized way. Unlike what we were doing before.
[00:04:48] Speaker B: There's been a surge in institutional interest in digital assets. And you guys have set up a platform here that Mirza described as kind of the WordPress of tokenization.
How do you think that the institutional players are going to use it? What are they going to want first?
[00:05:15] Speaker C: So a lot of these institutions have existing kind of compliance frameworks that might seemingly be incompatible with a lot of the existing styles of working with DEFI or existing blockchain primitives. So what this permissions layer and this RWA layer for Injective allows for is to migrate that same compliant framework that's adhered to by all these institutions very much seamlessly deployed onto Injective at effectively speaking, an extremely low cost of migration and maximizing the access to every single player within the digital asset space.
[00:05:57] Speaker B: Okay, Mirza, One of the big interest areas for tokens these days was one of the lead stories in my newsletter is around stablecoins. How does stablecoins work within the objective ecosystem?
[00:06:18] Speaker A: I think the main thing people often miss out on crypto is it's great you have these assets like Bitcoin, Ethereum, but they're volatile, right? Like most people can't actually access crypto unless they understand the value of it. Stablecoins I think is a great entry point for most people into crypto. Right. So there's a couple of different ways to think about it. Right? So one is for developing nations where you have very, very volatile currencies like let's say like Venezuela or El Salvador, you want to an asset that you can easily onboard with or keep. So that's where a lot of big stablecoins come in, like USDC or usdt, both are available on Injective. Today most blockchains only allow you to access them via one, let's say Stablecoin. But I think diversity is very, very paramount when it comes to this because in the past many stablecoins have gone kaput, right? A lot of them didn't necessarily work out famously, let's say Luna by Terra. So I think diversification is key here. So Injective today, not offers of course USDT or usdc, but also a number of interesting new asset pairs like let's say USDM which is by Mountain Protocol, or ausd, which is by Agora, or ousd, which is by Ondo. So these new primitives are interesting because USDT or USDC are just dollar backed, right? And they don't necessarily give you any interest. That's how those companies are making their money, by investing your capital into Treasuries or other assets and keeping that yield. But new assets like let's say Agora, which created AuSD, Agora is made by the son of the Vanac family, which famously created, let's say the Bitcoin ETF and also now the Ethereum etf. So the Vanac family is sponsoring a new type of stablecoin where you actually get to keep the yield so they actually will give you a revenue split on the profits and that can flow back into your community or ecosystem. So it's an entirely new primitive right on those. OUSD allows you to also get yield and Mountain Protocols is entirely backed by US Treasuries instead of just being dollar backed. So I think these different experiments are interesting because one, you can get more yield or you are diversifying your asset classes and it basically allows you to come into injective not only if you're a retail person from let's say a developing nation, but also if you're an institution. Because if you're an institution, you usually don't want to hold something volatile. You usually want an entry point where you understand the asset, it's stable, you can trans. So I think those are a really good way to get started in crypto. So our goal moving forward is not only to offer all of the major pairs, but also the experimental stable assets just as this ecosystem continues to grow.
[00:09:03] Speaker B: Can you discuss with me some of the challenges or opportunities that you've encountered when you've Been promoting injective solutions to those traditional financial institutions.
[00:09:18] Speaker A: Yeah, there are a couple things, Number one always is education. A lot of people just know the bare minimum, especially if they're traditional finance guys. They might just have heard what they see on the news. And the news about crypto tends to be typically not so positive.
So a lot of it is about educating on how they can safely onboard the opportunities that decentralization can bring that they currently can't access. But for institutions, it really boils down to economies. A couple key components, right? They don't necessarily want all these fancy tools and gadgets. What they actually are looking for is one, is it somehow going to get their financial processes completed faster? So they care a lot about speed and latency.
Two, they care a lot about cost, so the cost of money, movement, or the cost of actually onboarding onto crypto. And number three is compliance. Right. That's always the huge deal breaker for most of these crypto projects because a lot of them might be fast or cheap, but they don't necessarily have those compliance find gateways. I think this is like just speaking to the institutions. Being in New York has allowed us to learn a lot about these needs that some other projects are missing. So Injector, for instance, right now is one of the fastest blockchains out there. And what we did is take traditional finance concepts like, let's say, the order book, and put it entirely on chain. So that order book is very familiar, like some of the stuff you're mentioning earlier in the call with ice, et cetera. That's what, what people are used to in the traditional stock market, just an order book. All the other fancy tools that crypto has created, like let's say an automated market maker or amm, is generally not used by institutions. Right. The slippage, the latency, none of it makes sense. So we put that entire order book on chain just because we want to appeal to the larger traders who are used to trading on an order book. Number two, we tried to get latency down as much as possible. So right now, injective is not only fast, but, but you can also put thousands of trades into each transaction. So right now you can process a transaction in about 0.6 seconds, right? 0.6 seconds for the block time. And you can put thousands of trades into each block. So this means if you're a sophisticated trader, you can put in order openings, order cancellations, you can run interesting arbitrage strategies all in one block, though that actually gets you closer to your goal, because right now the biggest Issue with blockchains are they might say like they're less than a second, but we know how it works. A lot of these institutions are delving in nanoseconds or operating in the nanosecond world. So unless you get to that, they're not really going to onboard. Number two is cost. We've cut costs down to basically zero, which helps a lot of people onboard because typically if the cost and time are not met, the institution won't onboard. And the final piece, and I think we delved onto this enough already. So not to belabor the same point, but just having that compliant gateway where you can set your own KYC guidelines is very important. Otherwise the institution doesn't even want to talk to you, right? Like they don't care how fast and cheap you are if they can't be compliant because they have a lot of regulators to deal with. So I think those three components are probably the three biggest issues or concepts institutions usually talk about or think about.
[00:12:34] Speaker B: So what strategies are you employing to foster partnerships or collaborations that will help drive adoption of Injective's blockchain solutions?
[00:12:47] Speaker A: Couple things, right? So you can break it down into two separate verticals. So one is the end user front, right? So these are everyday users. So everyday users care about one onboarding Rails. So being able to on ramp with fiat into crypto. So we've integrated a number of different partners, let's say like Moonpay or Transact, Binance Pay, et cetera, where you can sort of come on to injective with your normal fiat pairs. Number two is different login solutions. So not only supporting your typical crypto wallets, but also allowing users to create accounts with their Google account or Gmail account so you can onboard easier. So that's number one, just reducing the onboarding rails and having partners that can help with the onboarding process is key. Once you come on board, a lot of it is about offering the retail users what they want or the everyday users. So this might mean different sort of trading assets or different sort of financial products that they don't might not get access to elsewhere. For instance, we introduced the BlackRock buildal index. So we basically took the BlackRock ETF and we created an index out of it. So an everyday user might not be able to access the BlackRock ETF because they might only have a couple dollars or not that much money to spend. But on Injective you can sort of onboard easily with no real cost and you can access the same ETF or a derivative version of it. So offering products that don't exist elsewhere is key for us. So whether that be different sort of index products, different sort of financial assets, different trading pairs, you might not get. So we've offered a lot of different FX assets, for instance, like tokenized FX or tokenized commodities like gold. So now you can take a position, for instance, if you want, in Bitcoin and hedge that position, for instance, with a commodity, if you want. Or if you think gold and Bitcoin are very correlated, you can take a position in both on the same platform without having to jump through hoops hurdles. So that's for everyday users just offering new markets, new assets, new onboarding Rails, new Fiat Rails. For institutions, a lot of it has to do with one, the permission gateway, two, offering interesting financial products that they might want to access, though, for instance, they might want to actually tokenize an asset as easily as possible. So what we offer is we've integrated with a number of different Oracle providers, we've integrated with a number of different sort of financial products. So if you want to come on board and say, hey, I want to tokenize this piece of real estate, you can actually do that on Injective much more easily than anywhere else, just because you can take the price feed with an Oracle solution and you can have that compliant gateway or that walled garden where you can have that asset sort of available for the users you want and then have those users access that asset whenever they want. So a lot of the. I guess the question is a bit broad, but I would say you have to take into account the entire user flow, whether it be onboard, and then really listen to their needs. What they want. What they want is not a replica of what exists in the new world or the real world. What they want is interesting products that don't exist elsewhere. And if you can offer a mix of both, like lessen the sort of onboarding hurdles and also offer them interesting asset pairs, then they're more than willing to sort of experiment and try out your blockchain solutions, whether that be an everyday user or an institution.
[00:16:07] Speaker B: When you say end user, are you guys currently offering a market at Injective that end users are using, or are they just using your software to build blockchain solutions?
[00:16:20] Speaker A: So it depends, right? So what we offer is a blockchain platform and you can build apps on that. So if you're a developer and you want to deploy a new app, whether that be a new decentralized exchange, an options market, et cetera, you can build that. So that is one type of end User, which is the developers themselves. And then then other end users might be your everyday users. So let's say they're traders or they just want to purchase an asset on the blockchain. They can access Injective via these different apps that the developers have created. And the last type of user is the institution that might want to tokenize an asset or might want to try out new blockchain solutions to more efficiently conduct their business. So I would say that there are three types of end users that we appeal to.
[00:17:04] Speaker B: You're not hosting a marketplace yourself, so some sort of registration would be required, is that correct?
[00:17:13] Speaker A: No, we don't do that, but the application is more than welcome to do it. So let's say you build an app and you just want everyone to onboard in a very compliant way or to register and verify with your passport. You can do that. You can set up those gateways yourself. The best way to think about it is like we are like the Apple or we are the iOS and people can build applications using our operating system.
[00:17:37] Speaker B: Eric, can you talk a little bit about what are some of the latest developments of the company and how they align with the long term vision that you guys have for it?
[00:17:52] Speaker C: So I think Mirza alluded to the recent launch with Agora. A lot of our focus recently has also been multi VM development for the core blockchain. And what this means is that there's obviously various development languages and also development environments and frameworks, even in the broader software and financial world. And for Injective's case, it's been primarily using this language called WASM that's based on Rust in the past. And right now one of our big push is to enable MultiVM, which is enabling multiple environments for different types of developers from all walks of life to build on top of Injective. And that will unlock a developer base of hundreds of thousands, if not millions. And on another hand, it's really about ushering forward a more efficient and a more performant blockchain for various financial activities, while really building up the functionality and features for different types of institutions trying to make their asset issuance and also deployments on top of Injective.
[00:19:04] Speaker B: Yeah. Who do you see as your biggest competitor or what platform do you see as your biggest competitor?
[00:19:13] Speaker C: I think within the space there's not a lot, to be honest, because even if there may be competitors, there would be kind of a the pie grows bigger type of situation. Really the competitor in a sense would be folks in the traditional financial world with their more traditional way of doing things. And that's what we're hoping to disrupt.
[00:19:34] Speaker B: Who's your target market for this? Marissa, when you're talking about the end users, what are the big pools of people that you're looking to reach?
[00:19:46] Speaker A: It's a very good question. So if we bucket it the same way as my prior answer, so let's say you have the everyday users. So who are these users? A big segment or sub segment of them are traders. So people who might want exposure to new assets or new product types and they want to take leverage bets or, or take part in new products like perpetual contracts. So a typical futures market for instance, has an expiration date, but with crypto you can get access to perpetual markets. So basically futures markets without an expiration date. So I think that's a huge sub vertical for us. So just everyday traders and also crypto traders. Right. Number two would be individuals interested in acquiring yield, so passive yield. So this could be done by a number of different avenues, whether it be earning passive yield on these different stablecoins or via staking the native token itself. So that's a different type of user that might just want to earn passive income on the blockchain.
So that's for the everyday users. The second segment is developers. Right. So the developers might be individuals just looking to build a new application, whether that be a new decentralized exchange, an options market, a sort of new derivatives market, et cetera. Right. Or a sort of institution only gated.
So that is a type of developer. And Eric sort of hit the nail on the head where before we were only offering people to build with webassembly, but now we're getting into a number of different environments, whether it be sort of the Ethereum virtual machine or soon the Solana virtual machine. So once you have all of them, then you can appeal to more developers, regardless of what language or what virtual machine they might be familiar with. And the last subset of user are institutions. Institutions is a very, very broad term, but we can bucket in a very different, very different way. One is sort of validators. So to operate the injective network you need a number of different node operators or people sort of operating the actual blockchain itself. A number of these operators today are big financial institutions. So let's say guys like Galaxy Digital, but also traditional sort of companies. So let's say like ntt, which is the biggest telco in Japan. So that is one type of institution. We appeal to people who just want to help operate the blockchain and in return they're Earning this passive yield or passive income. The second type of institution are financial institutions. So this be big trading entities. So let's say like jump crypto guys like Galaxy Digital, guys like imc. So traditional sort of market participants that have onboarded and we've onboarded SIG is also one of the bigger ones. And what these people are really looking to do is make arbitrage bets between sort of decentralized markets and centralized markets. So they're either arbitraging or getting access to new sort of forms of capital or new retail flow that they didn't get in traditional markets. And they're able to capitalize on that by, by their trades, by their market making operations. So that is a big segment for us. So sort of institutional market makers and traders. And the last type of institution are institutions looking to tokenize assets, which I think really has come to the forefront of crypto in the last year and a half, two years, where it is a slow process because there's a lot of compliance hurdles. But they're looking to tokenize traditional financial assets or instruments. They're looking to build new indices. They might be looking to sort of gain liquidity or make markets liquid that wouldn't otherwise be possible. So let's say interesting concepts people are exploring around real estate or traditional commodities that are less liquid. So I think that is a third type of end user that we appeal to. So an institution looking to tokenize assets.
[00:23:25] Speaker B: Eric, I'm going to ask a derivation of that question and Mirza kind of hit on it a little bit, but I want to hear your answer for this. So I asked him who this appealed to and I'm going to ask you why would somebody want to use Injective Labs?
What does it do for them?
[00:23:52] Speaker C: From a basic point, let's first talk about why deploy a real world asset or build an application that allows for tokenization of existing roar assets. And that's actually a very easy answer in my personal opinion. One of the things that we often notice is that a lot of the option platforms or a lot of the fractional ownership platforms before we even going in terms of stuff that's worthy of the financial market, because that's a whole host of other problem for exotic assets. But even from everyday asset like real estate or collectibles or different types of smaller items or less valuable items, the illiquidity for that is quite jarring. And there's typically like a 30 to 40% markup and even in auction platforms, at least a 10% buyer premium for most of these goods. And what this means is that you have a very, very limited kind of access to a purchaser base. And the purchasers or the interested parties also have to go on this platform, go arduous process of spending hours upon hours. So I onboard the platform, bring the money onto the platform to be able to bid on these. And really, what could have been easy or what could have been like, the ideal case is that everyone has kind of like this financial passport almost. And once you have this financial passport, you can list any of the assets that you want. And anyone with the financial passport can also bid on the asset that you want. So it becomes a very easy process where I already have assets on this, a blockchain, or from other blockchains. All I need to do is to just move it over. That'll take maybe like a fraction of a second or a few minutes at most for me to basically participate in this asset. So your audience suddenly stops becoming like this region that you have to advertise for, or limited to the US but rather to an entire global audience, just like what the province of Internet does every day. And everyone has equal financial access to these type of goods. And obviously with that in mind, why injective? Injective allows for that to be the cheapest and also the most accessible and also the fastest avenue and platform to do so. It's not cheap because the cost is lower, because there's always going to be other platforms that have a lower cost. But rather it's cheap because it's extremely easy to get onboarded, it's extremely easy to be compliant, and it's extremely easy to go through a process of making a listing, having it verified, or having it deemed legitimate. So that is kind of like the shorthanded way of like explaining why.
