The Future of DeFi Payments: Podcast Ep. 161

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Chainalysis
05-07

This is the first episode from our “Live from Links” series, where we take the hottest conversations that were recorded live from the Chainalysis Links conference in New York City. The transformative journey from traditional finance to the innovative world of blockchain is not an easy one, but this week our Director of Product Management at Chainalysis, Matthew Wilson hears from someone that has taken on the task, Jas Takhar (VP of Engineering, Stablecoin & Custody Engineering, Ripple).

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 161.

Public Key Episode 161: The Future of Financial Use Cases on the XRP Ledger

The transformative journey from traditional finance to the innovative world of blockchain is not an easy one, but this week Matthew Wilson, our Director of Product Management at Chainalysis, hears from someone that has taken on the task, Jas Takhar (VP of Engineering, Stablecoin & Custody Engineering, Ripple).

Jas explains how Ripple and the XRP Ledger are pioneering advancements in stablecoin payments and DeFi to facilitate seamless, efficient, and compliant financial operations across the globe.

He explains XRP Ledger’s decision to focus on native features over smart contracts, emphasizing security and payment optimization, while revolutionizing cross-border payments, enhancing liquidity, and ensuring compliance with evolving regulations.

Quote of the episode

 ”We’ve really looked at the financial use cases that we are interested in contributing to the Ledger, our customers are asking for. Around moving money and moving value on-chain. We are looking at innovations such as lending protocol, identity, permission pools, so big regulated financial institutions can bring traditional TradFi use cases on- chain.” – Jas Takhar (VP of Engineering, Stablecoin & Custody Engineering, Ripple)

Minute-by-minute episode breakdown

2 | Jas Takhar’s engineering career with Salesforce, BlackRock and Barclays

5 | Ripple’s vision for blockchain-based financial innovation

7 | Balancing decentralized and centralized operations in Ripple’s ecosystem

10 | The future of stablecoins and real world asset tokenization

15 | Mapping traditional finance to the blockchain using permission pools

18 | How to provide security and trust if $30 Trillion worth of tokenized assets come on-chain?

21 | Conferences bringing energy to the industry – Announcement: APEX: XRPL Developer Summit

Related resources

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Speakers on today’s episode

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Transcript

Matt

Welcome. I’m really excited today to talk to Jas Takhar, Vice President Software Engineering from ripple. Personally, I’m really interested to learn about how ripple and the XRP ledger is planning to introduce stable coin payments and decentralized finance as part of the XRP ledger. But first, before we get into the more technical side, Jas, I’d love to learn a little bit more about you and your progression from traditional finance into the world of crypto.

Jas

Great thanks for having me on. So I think I have a very typical progression. I started off in tradfi, in technology, working for Barclays and BlackRock, where I was helping to build fixed income portfolio management systems and then technology that supported the ETF or iShares business, which is now blackrocks business. And so that’s what I did for almost 10 years. Then I took a detour and went to Salesforce seven years and that’s where I worked on early chat bots in 2016 and 2017 so before the whole LLM high, before this whole open AI, before all of this stuff got sexy, we were building chat bots, very simple chat bots on top of the Salesforce platform. And whilst there, you know, maybe I was missing tradfi. Maybe I was missing all my time at Black Rapid. And then I started hearing about blockchain and crypto, and the fact that a lot of these traditional use cases had the potential to move to blockchain, and that’s what really piqued my interest. So while I was there, I was like, okay, you know, maybe I need to get back into FinTech, albeit in crypto, something that was very new to me, and then I started looking around at who those significant and major players in the industry were. And maybe it’s my background working for these big financial companies, but I really wanted to work for the adult in the room, crypto company that wasn’t trying to cede control of the financial system, or one that was rather working with regulators around the world and working on the right side of regulation and the law and ripple was it four years ago, I joined ripple, and here we are today.

Matt

That’s amazing. And I think most people don’t realize that ripple has been and XRP has been a pioneer in the payment space since very early.

Jas

Yeah. I mean, we call ourselves the OG company right founded over 12 years ago, and I think it’s the first altcoin. Maybe it was Litecoin to launch after Bitcoin. So it’s very, very early days. And the original architects of the XRP ledger were also Bitcoin developers, and they looked at Bitcoin and thought, wouldn’t it be great to build a chain that’s optimized for payments, optimized, meaning fast finality and cheap fees? And hence they build the XRP.

Matt

And when you think about the future of the XRP ledger, maybe you could start with thinking back from its starting point in 2012 how has it progressed and changed over the past 13 years? And what do you see technology changing in the future for it?

Jas

Yeah, so like I said, it’s really the XRP Ledger was designed for fast payments. So payments is really at the heart of the XRP ledger, and the XRP ledger also differs from other popular chains today, such as Ethereum, in that it doesn’t have smart contract functionality. And that was a deliberate design choice by the original architects, because they thought, Let’s build everything natively. Let’s reduce the attack surface, let’s not provide a Turing complete language where, you know there are a lot of attack vectors that are possible. And let’s build a ledger that’s optimized for payments has very native features, including the decks that are built into the ledger, and therefore put guardrails around what can be done and how certain things are done on the XR ledger. So like I said, it was the first blockchain built with the native Dex, and over the years, it’s really added features such as transactors. Transactors are small programmability modules that provide features such as escrows. So very payment sort of financially related features and functions have been added natively. Over the years, nfts were added. So that happened in 2022 In fact, I was in this very hotel in 2022 for, God knows, I think it was called like NFT, USA. I remember the concert, but it was the big NFT conference. Very different energy than today. You know, it was crowded, it was madness. It was all sorts of, you know, side shows going on. So the nfts are native objects today, on the XRP ledger, fungible tokens. And then since then, we’ve really looked at the financial use cases that we are interested in contributing to the ledger customers are asking for around moving money and moving value on chain. So payments is obviously a large part of that. But also we’re looking at innovation such as lending protocol, identity, permission pools. So you know, big regulated financial institutions can bring traditional tradfi use cases on chain.

Matt

And if you think about how much of this can you accomplish without smart contract functionality within ripple,

Jas

the XRP ledger is decentralized. It’s open source software, and so ripple is a contributor to this open source software. And so we propose what we call amendments, and the community votes those amendments to be activated or not. And so we have a view around building financial use cases onto the XRP ledger. And so the contributions that we propose, or the amendments that we propose are really around those use cases, like I mentioned lending, I mentioned identification, I mentioned permission, pool, all features and functions that traditional finance need to come on chain.

Speaker 1

And

Matt

And we’ve seen at least both on the XRP ledger. There’s been huge interest from banks and financial institutions for that payment use case, right? And largely starting with your swell conference years ago. And like people have viewed this as the next iteration of the Swift banking system. Is that still how you sort of view the XRP ledger, or is the view evolving into it becoming more of a platform for other applications?

Jas

Yeah, it’s good question, and it’s probably a combination of those things. So ripple, as a company, was set up, like I said, in 2020 12, once the XRP Ledger was open sourced and decentralized, ripple stated vision is to enable the internet of value, so the free movement of value on chain, much like data and bits move around the internet using TCPIP so that’s sort of the vision of the company, and we remain fixed on that vision. So like I said, a lot of the attributes that we’re proposing on the ledger, a lot of the attributes that were built to enable payments, such as auto bridging, bridging between currencies, where a liquidity pool for a given currency pay doesn’t exist, and those are native features on the ledger. So it’s built with all of this in mind. It’s built to move value very, very quickly. The finality time, or the block creation time on the XRP ledger, has consistently been around four seconds, and you can contrast that with many minutes on other chains. And also the fees are a fraction of an XRP, which is pennies today. And again, you can contrast that with much more elevated fees on other chains,

Matt

with your experience working for some of the best technology companies in prior roles, and now you’re working in something that is decentralized in decision making and processes and thought, what are the differences? And like, how does that feel from an engineer?

Jas

Yeah, it’s a good question. But really, ripple works on two fronts. The first front, like we’ve just talked about, is making contributions, proposing amendments to the XRP ledger. And ripple may have a view on, hey, this feature would be great to add to the XRP ledger, but we don’t control it. We can’t activate amendments. Like I said, there’s a community of voters that really have to vote, there has to be an 80% majority for over two weeks for a feature to be activated. So we could propose a feature, and it actually doesn’t get activated. So we work in an open source world. We work in a world where we don’t have a lot of control, but we work in a world that we have a view on, that we think the XRP ledger is very well geared up, you know, very well architected for payments and the flow of value. And I think a lot of the community is also behind that vision, and they also will vote for beaches that move that vision forward. So we’re working in this world where you’re right there is there is this level of uncertainty, but that’s just the cost of playing in an open, decentralized world and an open source world. So that’s the first part of what we do. The second part of what ripple does is we build infrastructure or digital assets. So this is software that we build, we control and we sell to our customers. This includes bank grade custody. It includes our payment network and it includes stable coins. So that is all software that we build. We build it, we control it, we release it, and we sell it to our customers. So we operate in both worlds, both in a decentralized, open source world, and in what you would call a traditional, centralized, or a traditional software company type of world. So you rightly stated previously, I’ve worked in the latter. Everywhere I’ve worked, there hasn’t been this decentralized component. And so when I first joined ripple, there was definitely a learning curve when we propose something on the XRP ledger, we really have to get the community involved. You know, a lot of conversation on platforms such as discourse and on Twitter. You know, really engaging with the community, helping them understand why we feel a feature or an amendment makes sense to go on the XRP ledger. And I think that conversation, that discourse with a small d, really helps the understanding of of the community at large and and overall, you know, amendments will be activated by the community if they make sense and if they’re in line with the original vision of the XRP ledger.

Matt

And so your previous roles, I imagine you’re trying to convince a CEO or managing director, and now you’re trying to convince the XRP army, who could be comprised of anonymous cartoon characters and Twitter profiles and discord characters. What is that like? And how do you sort of build consensus in this very free, flowing, decentralized world?

Jas

Yeah, so I would answer that question first by saying there’s the decentralized community of node operators that actually vote on amendments. And so these are large institutions. These are academic institutions around the world, and also, to some extent, reputable individuals that know how to run nodes. So they operate nodes globally as part of the decentralized network. And like I said, there’s concept of a group of node providers that actually vote on amendments. So they vote on the changes, and I think there’s 34 of them at the moment, so 80% of them have to vote yes on an amendment for more than two weeks for it to be activated on the network. So there’s that side of the community, which is the node operator community, and then there’s the, I think, in the classical terms, the XRP army. And these are just holders of XRP, incredibly passionate bunch of people around the world that hold the token and to be fair during the SEC lawsuit, really came out and stood by the XRP ledger, XRP and ripple, the company, it was just phenomenal, phenomenal to see that community and to have such an engaged and active community behind the XRP and the XRP ledger only helps moves its its vision along.

Matt

And when you think about the software engineering services that you’re providing on behalf of sounds like it’s largely banks for payment infrastructure, yeah. How do you and your engineering team sort of balance these two modes of operation?

Speaker 2

It’s

Jas

It’s a good one to talk about. You know, there are different business units within ripple, the company. So there’s a business unit called ripple X that works on the blockchain, runs nodes in the in the decentralized network, and also supports the community of developers through contributing to open source tooling and also offering grants to developers who want to build on the XRP ledger. So ripple X does all of that. So they’re really the decentralized operators in the world of the XRP ledger. And then, like you said, they’re the, let’s just call them the centralized engineers you were building the payments product, the stable coin product and the custody product. And you know, a large part of what they do is like, how you know what part of the flow belongs on chain, what part of the product belongs on chain? And again, they will work with the community where changes have to be made on chain. They will, you know, propose amendments where needed.

Matt

And we’ve seen at chainalysis Huge amount of adoption and global interest in stable coins, particularly over the past three to four years. How do you and the XRP ledger view stable coins and stable coin adoption? What do you have planned?

Jas

Yeah, so look, stable coins are key to payments. It’s part of the payments flow today, moving money across borders, and so ripple, stable coin is in that flow and will continue to be in that flow in the future. But also when it comes to defi, when it comes to real world asset tokenization, you need a stable, trusted token, or currency on chain that people can use for staking, that people can use for settlement of trading and transacting with real world assets. So our USD, the stable coin that we’ve that we’ve launched, is very much part of the payments world and the defi world.

Matt

And how do you view evolving regulation that impacts stable coins? Do you view there to be centralization around US Dollar as the stable coin that, like we’ve seen that so far? Do you see that trend continuing? Or do you think that there will be stable coin, Euro stable coin?

Jas

Yeah, I think it’s, I think it’s going to be very regional. So ripple, we’ve worked very closely with the New York DFS, NY DFS, to issue in a very compliant manner. Or USD, here in the US in Europe, there’s mica, and there’s regulation around there for issuing stable coins. So, you know, a lot of the financial institutions in Europe will need to and will want to micro compliance stable coins. And I think there was news recently that in Europe, binance have de listed one or two of the top stable coins in the world today because they are not micro compliant. And similarly, in other jurisdictions, I see regional, regional regulation that will really fuel the use and expansion of stable coins.

Matt

So it’s been four years for you now it has, yes, approaching four years a lifetime in crypto. Yeah, that’s everything that’s changed the past four years. It’s we’ve gone from a world where Bitcoin was dominant to beginning of Ethereum defi. Like, what do you see next? What are the major trends that you and the XRP ledger team are focused on,

Jas

like I said earlier, there’s an incredible groundswell of energy around real world asset tokenization. There’s an there’s an incredible amount of energy around bringing Tradfi use cases on chain, be it collateral management, be it instruments such as repos, or functions such as escrow. So real world asset tokenization is happening today. If you think about stable coins, is two, $50 billion worth of approximately market cap and stable coins today, and then you’ve got blackrocks, Biddle and other bonds and tokens that are coming on chain, sock, genforge, a big bank in France, has used ripple custody, for example, to issue their Euro back stable coin. And so this is happening today. So the use case that need to be supported are around these other functions that that that the traditional financial instruments being used in the traditional world, those use cases are going to come on chain. So if you have very high quality, tokenized assets, they can be used for collateral. It can be moved around the financial use case landscape.

Matt

And which of those do you view as like being the most likely or like a breakout success in the way that when people were first using stable coins on the Bitcoin network, the Omni, they’d wait 10 minutes for a transaction to be mined, literally, and then it migrated to Ethereum, and you could get a block confirmed within a minute or two. Transaction fees would be at least in 2017 it was still like $20 they weren’t in 2022 right? Yeah. And then NFT time. Like, which of these in terms of settlement, in terms of real world assets, like, where do you see the most likely break out, new look. I think they’re all possible.

Jas

Like I just said, I think in traditional finance there’s trillions of dollars being moved around as collateral.? Yeah, I would love to see that come on chain, right? The fact that it’s 24/7 it’s fast, it’s cheap, on the XRP ledger, for example. I think it’s very compelling for traditional finance to use on chain assets as collateral. I think that is definitely a big breakout use case.

Matt

What would be the first signs that, like, that vision is coming true?Like, how will we know? Like, you start to see the value of assets on chain picking up, or you start to see more issuers using the asset XRP ledger. What will be some of the signs?

Jas

I think that. I think that is sign, right? Yeah, we’re tracking, you know, we internally and definitely, you know, to some extent, externally, we track the amount of tokenized assets from $1 value perspective on chain. So, you know, there’s signals that you will see there. We also talk about the movement of value on chain. And so not only do you see value tokenized on chain, but we’re very focused on value moving transactions. Yeah, how much utility is actually out there? I think those are the two forward looking indicators.

Matt

I remember we at chain analysis, we have this incredible data set of global transactions, and when we pulled data probably four years ago for the value that was transacted in terms of Bitcoin Native Asset, and then the value sent via stable coins, for the first time, the stable coin value had like outpaced the value transacted on Bitcoin. For me, that was sort of the moment when I realized that the world doesn’t want to transact in Bitcoin, it really has become this digital gold or something that people put in a ledger or treasure and just sit on. And I think people in institutions don’t want that, that exposure to volatility, absolutely not. They need the fast finality time. They need frictionless payments, and they need a table asset that they can count on from a trusted issue, exactly. Yeah. And so do you view that that transition also happening with with equities, or what are some of the other real world categories that you find most compelling collateral? Like, what collateral Are you imagining?

Jas

Yeah, I think in terms of collateral, you know, we’re hearing a lot from our customers around collateralizing bonds and being able to use those as collateral, but maybe even, maybe even stable coins using those as collateral. Equities, and I’m personally hearing less about equities at the moment, but certainly that’s a use case that’s there’s no way that all of these fixed income assets are going on chain and equities aren’t going to follow. It’s a question of when I think.

Matt

And you mentioned earlier at the beginning, around permissioned tools and like the permissionless nature of right, decentralized finance, meeting the permissioned or semi permissioned world, how do you see that evolving?

Jas

Yeah, and there’s a little bit of tension there, right? Because we a lot of the early advantages about the promised land and blockchains was that it’s permissionless, it’s freedom. You can do whatever you want on there, but everything is on there. It’s all visible by everybody. But, you know, compliance is non negotiable for large financial institutions. They need to know who their counterparties are. So I talked about, you know, permission pools that are coming soon to the XRP ledger, where, if you’re in, if you’re in a if you’re in a liquidity pool, you know who you’re transacting with. You know who your counterparty is, and that’s a very important requirement for banks and big financial institutions around the world.

Matt

And looking back on your your prior career at BlackRock, Are there similarities that you find between that permission nature and what you’re building towards with these?

Jas

Yeah, I look, I think, I think a lot of what we are doing at ripple is all about mapping traditional finance to the blockchain, and so knowing your counterparty, you know compliance, such as a travel rule, you know these are all very, very important rules and regulations that these big financial, banks and institutions operate within. And they’re not suddenly just going to operate outside of those regs because it’s on chain. Rather, they’re going to have to operate within those regulations and other regulations that are coming to, you know, to the world of blockchain.

Matt

What are you most excited about when you look forward for the next four years at XRP ledger.

Jas

look the next four years is all going to be all about what I said earlier. It’s like all these traditional financial use cases coming to chain. And I think there’s going to be, it’s happening today, but I think this is just the tip of the iceberg. Standard Chartered and released a report where they think within 10 years or 2034 there’s going to be $30 trillion worth of tokenized assets on chain, a significant proportion of global GDP. That’s very exciting. The opportunities that are out there and the prospect of innovation are huge with all of that liquidity use cases on chain.

Matt

And how do we provide ample security and trust in this world, where there are $30 trillion of assets on chain, and over the past month, we witnessed the biggest financial theft to occur ever, with the buyback hack a billion and a half dollars. How does someone prevent their bond portfolio from being swept away in a single transaction by North Korea?

Jas

Yeah, it’s very topical with the buyback hit, but with the buyback with the buy bit hack. So look, when it comes to ripple custody, we talk a lot about, you know, attack vectors, and all of the attack vectors that have to be considered. So there’s two parts of all hacks, right? Or most hacks, one is the technology piece. And so even with the strongest multi SIG custody schemes, if a human is compromised. You know, you’re cracking over the doors to hacks, and that’s what happened with the bybit Hack and most others. So we always talk about and we also, you know, and our customers come to us for advice about, you know, what it is, what is it that we need to secure assets? So not only do we talk about custody and the technology HSMs and the policy and the governance engines that we have built, we also speak a lot more holistically about security in general and making sure that their staff is aware and trained against social engineering phishing attacks. Make sure that value is spread across wallets, spread across different technologies, and spread across different deployment models, from on prem to in the cloud and again, all technologies and solutions that we provide with ripple custody.

Matt

And so today we’re here at chainalysis links. We call this the Super Bowl of crypto crime. Internally, we love it. We’ve had a conference for yes, now six years or so. Curious to hear takeaways that you’ve had so far, and then I’d also love to learn a little bit more about your upcoming conference in June.

Jas

Great. Yeah. So look, every time I come to conference such as this, it’s all about the energy. It’s all about bringing the community together. So that’s the main takeaway I have. I met a number of people. I’m going to be meeting a number of people after this as well, to talk about ripple, to talk about crypto in general, talk about compliance. And so there’s just a lot of energy at this conference, and it’s palpable, and it’s energizing as well. So, you know, it’s been a great conference you’ve guys have done a great job putting this on and bringing the community together. And the conference you’re referring to in June is apex. So apex is the xrpl Developer Summit this year. It’s in Singapore, and this is really a forum for all developers, businesses and institutions are interested to go on chain, to get together, to understand more about the XRP ledger, to understand more about the use cases, to learn how to build on the ledger, and really get that community spirit going. And that’s coming up in Singapore. Like I said, you know, ripple as a company, we really look forward to this annual event, like I said, it’s energizing for the community, and it energizes ripple, the company as well.

Matt

Amazing. That’s really great. And then for listeners curious to hear, best way to connect with you, whether it’s social media or the XRP ledger and different decentralized entities so we can follow

Jas

I’m personally on LinkedIn and on Twitter, although I’m more of a reader than a poster, but there’s great ripple voices that are on Twitter. Should definitely all subscribe to David Schwartz, our CTO and original author, not only will you learn a lot about the XRP ledger and the community at whole but he tells great jokes. So great one to follow. And same with ripple, the company you know, our different business units are on Twitter, are on LinkedIn. So we have a we have a great team communicates the vision and our product vision and our products that we offer across social media, awesome.

Matt

Well, Jas, it’s been a real pleasure to get to know a little bit more about you your background, and to hear about all the awesome things that ripple and the XRP ledger team are doing. So thanks so much from everyone on on the chainalysis side, and look forward to seeing you and following progress.

Jas

Thank you, and thanks again to chain analysis for having me and putting on this great conference.

The post The Future of DeFi Payments: Podcast Ep. 161 appeared first on Chainalysis.

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