Q4 2025 Guess? Inc Earnings Call

Good day, everyone and welcome to the guess fourth quarter fiscal 2025 earnings conference call I would like to turn the call over to Fabry spend numbers.

Speaker Change: And your Vice President of Finance Investor Relations and Chief accounting officers the floor is yours.

Speaker Change: Thank you operator, good afternoon, everyone and thank you for joining us today.

Dennis Eagle: On the call today with me tell US are there any chief Executive Officer, and Dennis Eagle Interim Chief Financial Officer.

Dennis Eagle: During today's call the company will be making forward looking statements, including comments regarding future plans strategic initiatives capital allocation and short and long term outlooks.

Dennis Eagle: The company's actual results may differ materially from current expectations based on risk factors included in today's press release, and the company's quarterly and annual reports filed with the SEC.

Comments will also reference certain non-GAAP or adjusted measures.

Dennis Eagle: GAAP reconciliations and descriptions of these measures can be found in today's earnings release.

Ken: Now I will turn it over to Ken.

Ken: Thank you Paul and thank you all for joining us for our Q4 fiscal 2025 conference call.

Ken: We are pleased to report to you on our fourth quarter and full year results as well as share the progress that we have made against important operational strategic and financial objectives that support our goal to drive sustainable revenue and earnings growth.

Ken: As we reflect on the past year. It was a year marked by significant accomplishments to name a few of this we completed our acquisition of Ragen born with WH be global this was the first brand acquisition in our 44 year history as we begin to leverage our powerful operating platform across more.

Ken: Brands.

Ken: We launched our new brand guest genes globally to attract a new younger customer offering an entire collection inspired by our rich archives, providing denim that is affordable yet sustainable.

Ken: We signed a partnership agreement with the Tata group to represent guests genes in India.

Ken: We launched an aggressive plan to expand the awareness and distribution of the guess brand in India closing the year with 22, new stores in the market.

Ken: With Paul's leadership, we renewed our guests handbag license with signal cementing that important partnership until 2039, which represents a large license under very favorable terms. In addition, we signed a new licensing deal with them to produce hand bags for a rug inbound.

Ken: We entered into a joint venture agreement with our partner in the Middle East the shallow group.

Ken: We internalized the development and distribution of our outer wear and dresses businesses previously licensed to G. III.

Ken: And we began partnering with Dx so global in the U S to manage our U S distribution to drive operating efficiencies and also sold our U S warehousing facility to free up capital.

Ken: At the same time, our team made progress on a number of fronts. We also continued to navigate a challenging environment as we have discussed through the year. The red Sea crisis disrupted the flow of goods and increased shipping costs and transit time.

Globally consumers have faced significant inflationary pressures tempering demand for more discretionary products traffic.

Ken: Traffic declines into our retail stores have persisted.

Ken: The strength of the U S. Dollar has impacted both our revenues and margins throughout the year, we remain nimble and we adapted managing the business to mitigate most of these external factors delivering products on time and maintaining healthy margins.

Ken: There was much to be proud of as well as much opportunity for improvement and we are excited entering fiscal 'twenty six with a strong plan to capitalize on our successes and address several breakthrough opportunities.

Ken: So let me get more into the details starting with our operating results for the fourth quarter.

Ken: In the quarter consistent with our expectations, we grew revenues by 5%, reaching $932 million adjusted for currency and last year's extra week. Our total company growth would have been 14% a substantial difference within that 14% of growth.

Ken: Reagan bond represented nine points and our core gift business contributed the other five points.

Ken: From a revenue standpoint, our core gift business performed near the upper end of our expectations with the strongest performances coming from our wholesale businesses.

Ken: In Europe wholesale grew mid single digits.

Ken: The strong currency headwinds and one less shipping week versus last year.

Ken: The guess brand continued its strong momentum among our thousands of wholesale customers in the region and we continue our optimism for this year with our order book for the fall Winter collection, having closed with 7% growth.

Ken: In Americas wholesale the guess brand also performed well exceeding our expectations for the quarter with double digit growth fueled by greater shipments of several core product categories as well as the direct operation of our outerwear business, which previously was operated by G. III as a licensed business.

Ken: In our European retail business revenues came in within our expectations and we delivered that constant currency comp increase of 5% as improved conversion AUR and units per transaction more than offset a year over year decline in store traffic.

Ken: Our licensing business exceeded our revenue expectations growing 18% in the quarter fueled by strong performance of footwear fragrances handbags and eyewear.

Ken: Our Americas gas retail basis did not meet our revenue expectations for the quarter.

Ken: Traffic headwinds coupled with a declining conversion resulted in an overall, 14% constant currency comp decline in our U S and Canadian gas stores and E Commerce.

Ken: Our guests Asia business performed at the lower end of our revenue expectations with a revenue decline in the upper teens with declines in most of our Asia businesses, most notably in South Korea, and China, where traffic to our retail stores remained challenging.

Ken: These declines were partially offset by the expansion of our India business.

Ken: Moving next to our product performance, we experienced different levels of performance across each of the region in Europe accessories sales increased with strong performances in both handbags and fragrances.

Ken: Women's apparel also grew with activewear outerwear knit tops and denim delivering the strongest increases.

Ken: Both footwear and our mens businesses posted modest decline.

Ken: In the Americas, both our women's and men's businesses were down as wear accessories and footwear, one product category that performed relatively well was women's activewear, driven by woven pants and skirts.

Ken: Turning to ragen bone the business outperformed our revenue expectations, mainly driven by strong E Commerce performance and we continue to be pleased with the progress that we're making and with the collaboration of our teams regarding fourth quarter total company margins, we delivered gross margin of 44 one.

Ken: Percent below our expectations, mainly driven by slightly higher markdown pressure and unfavorable currency impact.

Ken: Total company adjusted SG&A increased 11% and was in line with our plan.

Ken: The increase reflects the addition of the rigor and infrastructure as well as planned increased investments in marketing and advertising, our marketing and advertising spending more than doubled in the quarter and supported investments in our guests brand Reagan, both domestically and abroad and in guest Jean.

Ken: These investments are designed to build stronger brand awareness and enhance customer engagement.

Ken: In the quarter, we delivered adjusted operating profit of $107 million.

Ken: On an adjusted operating margin of 11, 4%, which was below our expectations and reflects our lower than anticipated gross margin.

Ken: And we delivered adjusted earnings per share of $1 48.

Ken: Within our expectations, given a lower tax rate for the quarter.

Ken: In all for the full year, we grew revenues by 8% in U S dollars to $3 billion.

Ken: In constant currency, we grew revenues by 10%.

Ken: We delivered adjusted operating profit of $180 million and an adjusted operating margin of 6%.

Ken: We reported adjusted EPS of $1 96.

Ken: While we certainly take pride in many aspects of our operating performance. This year. We are disappointed to have fallen short of the earnings goals that we set for ourselves at the beginning of the year.

As we look to fiscal 2026 in the future. We are focused on key strategic initiatives to strengthen our organization.

Ken: <unk> brand awareness and customer engagement increased retail store and ecommerce productivity build a more efficient infrastructure and optimize our business model to improve profitability and return on invested capital.

Ken: In addition, we have many opportunities to grow our business and we are well positioned to leverage them in the near and long term.

Ken: I will now spend a few minutes on each of these initiatives.

Ken: I will start with our organization.

Ken: We are very pleased that Alberto Tony will be joining our team as chief financial officer starting in June.

Ken: Alberto brings with him a strong global financial and operational background.

Ken: <unk> 17 years with the Heineken company, where he progressed through multiple financial roles.

Ken: He subsequently spent several years as CFO of the <unk> group and most recently as CFO of plus Bnb Italia group.

Ken: <unk> will be best in Lugano, and will lead our finance team globally.

Speaker Change: Im also very pleased to welcome Laura answer Mario <unk> to the position of General Counsel also based in Lugano.

Speaker Change: <unk> spent the last five years with a Christian Dior Couture company. Most recently as general counsel for the EMEA region.

Speaker Change: In addition, we have reorganized and have promoted <unk> Mimo Glu to Chief commercial officer for Europe, and Asia, who currently leads our business in many markets across Europe, and Asia, who has been with gas for nine years and has progressed with significant added country responsibilities we have.

Speaker Change: Also promoted Vladimir Romanov, two chief merchandising officer for EMEA.

Speaker Change: EMEA has also been with guests for nine years, developing and running our business in Russia and Kazakhstan.

Speaker Change: He brings outstanding leadership qualities and product knowledge. He will also be based in Lugano and will oversee our retail buying planning store development visual merchandising and retail operations team.

Speaker Change: Regarding our marketing initiatives, we are committed to continuing to invest in our brands to expand global awareness and to improve customer loyalty and frequency of shopping.

Speaker Change: In North America in particular, we are focused on improving customer engagement and traffic to our stores and online.

Speaker Change: We know that 80% of the customers visiting stores performed extensive research online prior to their visits.

Speaker Change: So having a meaningful presence in social media, it's critical to influence customer choice and behavior, we have engaged general idea.

Speaker Change: Full service creative agency to tap into this opportunity. This project is ongoing and we expect the implementation will begin in July this year.

Speaker Change: Nicolai Marciano is leading this project internally.

Speaker Change: We're also implementing a new CRM system in Europe, and the early results have been encouraging.

Speaker Change: We have been testing new imagery and navigation in our websites and social media channels.

Speaker Change: Focusing our marketing efforts and resources at a more local level with good initial results, including improved conversion.

Speaker Change: Regarding our retail store productivity, we are focused on product pricing visual merchandising and customer experience, we plan to develop exclusive products for the direct to consumer business.

Speaker Change: Leveraging our speed to market model to address current trends and the replenishment of best sellers more effectively.

Speaker Change: As part of our efforts to optimize the Assortments per store, we will work with our more sophisticated store clustering model that will consider specific customer interest price sensitivity, whether characteristics and casual versus dress preferences.

Speaker Change: Regarding pricing, we identified opportunities to expand our offering of products at the entry price points in several categories. We strongly believe that today's customers are a lot more price sensitive and will respond well to quality product offering strong value for the price.

We plan to optimize the use of store selling space with enhanced visual merchandising and appropriate space allocation based on category potential. We are currently developing a new store concept that addresses this opportunities.

Speaker Change: Most of these initiatives should also benefit our e-commerce business, while some of these initiatives will be implemented as early as the second quarter, we expect to see the full impact of this initiative in the second half of the year.

Speaker Change: My next point is about our infrastructure and expense optimization.

Speaker Change: Our global presence is significant requiring sizable cost to run the business and new investments to continuously upgrade our capabilities. We currently have two distinct infrastructures that support our different business in the U S Asia and Europe, we are exploring the potential.

Speaker Change: Our integration of <unk> networks, which we believe can have a significant positive impact on our cost structure and profitability over time.

Speaker Change: We're also continuing to optimize our business portfolio and.

Speaker Change: In connection with this let me talk about our business in greater China.

Speaker Change: We expect that this business will lose approximately $20 million this year in.

Speaker Change: In spite of how challenging this market has been for us over the years. We continue to believe that there is an opportunity for the guests brand in greater China as our brand awareness is high and the market is very large and compelling.

Speaker Change: We plan to turn this business to a third party to run it we have already met several potential candidates for consideration. We expect for this transition to be completed before the end of this year, which should contribute to a significant improvement in our profitability in fiscal year 2027 and beyond.

Speaker Change: In addition in North America, we see an opportunity to exit nonstrategic unprofitable guests full price store locations and consolidate some of our infrastructure supporting that business, we expect to reduce our north American store fleet by roughly 20 stores by the end of the year with some of them closing.

Speaker Change: This year at their natural lease end.

Speaker Change: The U S and Canadian markets continued to be critical to our long term strategic vision for the brand. So we plan to maintain a significant retail presence with stores in key cities and markets.

Speaker Change: Taken together. These two initiatives are expected to unlock over $30 million in operating profit starting with next fiscal year.

Speaker Change: Let me now touch on growth.

Speaker Change: I believe strongly in our company's long term opportunity to grow our revenues organically.

Speaker Change: First starting with our direct to consumer business. The work I, just mentioned to attract more customers into our stores and to our websites and to improve the productivity of our assets should impact our top line performance meaningfully we have great store locations in key markets and our sales productivity.

Speaker Change: It's below the benchmark set by best in class operators in the same malls or commercial areas.

Speaker Change: Similarly, our e-commerce penetration relative to our total direct to consumer business is also lower than for the best online performance.

Speaker Change: Second we continue to plan growth with our wholesale business after many years of consistent expansion.

Speaker Change: Paul and the creative team have done an outstanding job of strengthening our product offerings, both internally developed and licensed products.

Speaker Change: As a result, many mature product categories continued to deliver solid growth such as handbags footwear outerwear dresses and denim products to name a few.

Speaker Change: Others are at their inception, such as at leisure men's accessories luggage in fragrances.

Speaker Change: Third we see significant opportunities for revenue growth in existing markets, such as Germany, Poland, Mexico, and central and Eastern Europe, and the new or under developed markets, such as Middle East, India and Latin America.

Speaker Change: And last our new brand initiatives with the guests genes and brag on bone can contribute sizable revenue growth in spite of the significant magnitude of our current sales base. All in all we see multiple opportunities to grow our revenues in the years to come.

Speaker Change: Looking at key growth drivers for fiscal 2026 first we expect RASM growth will continue to contribute significantly to our top line growth. Both as we operate for a full 12 months and also as that business continues to grow organically.

Speaker Change: In addition, as I mentioned earlier, we have entered into a joint venture agreement with the shallow group our current licensee to directly manage our business in the middle East.

Speaker Change: Through data arrangement, we will enjoy the benefit of the full retail business and our revenues, which should contribute meaningfully to growth in the year.

Speaker Change: In Europe, we expect our gas business will continue to grow, especially in our wholesale business, where we believe we have been gaining share for the last several years.

Speaker Change: As I mentioned earlier, we recently closed our order book for the fall Winter season, this year with orders up 7% to last year's fall winter season.

Speaker Change: And Additionally, we expect <unk> to also contribute to this year's growth as we expand within the distribution that we already have opened as well as expand that distribution, including new stores in both Tokyo and on Melrose Avenue in West Hollywood.

Speaker Change: And that brings me to our outlook for fiscal year 2026.

Speaker Change: We are expecting to achieve revenue growth in the range of three 9% to six 2% adjusted operating margin between four 5% and five 4% and adjusted earnings per share in the range of $1 32 to $1 76.

Speaker Change: Let me clarify that this guidance does not include the impact of the U S tariffs announced yesterday.

Speaker Change: While our earnings could certainly be impacted let me share a perspective on how tariffs may affect our results.

Speaker Change: First we operate a very diversified business model geographically roughly 75% of our business is conducted outside of the U S and therefore not subject to increased tariffs.

Speaker Change: Now with respect to the remaining 25% our estimate of the cost of the products that we directly produced and distributed in the U S is roughly $200 million.

Speaker Change: About one third of this total relates to rag and bone, which attracts a more affluent customer which gives us greater flexibility in pricing power.

Speaker Change: The remaining two thirds of that relates to the gas business in the U S, where we have a substantial outlet business.

Speaker Change: Based on the nature of the products that we carry in our outlet assortment. We feel there are significant opportunities to counter sources products and markets, especially in Latin America, where the tariffs announced tend to be more moderate.

Speaker Change: To close this past year, we navigated a challenging environment and made significant progress in executing our plans against important operational strategic and financial objectives.

Speaker Change: Behalf of Paul and myself I want to thank our teams all over the world for their hard work and their great contributions.

Speaker Change: As we enter fiscal year 2026, we are excited about our growth opportunities, we are focusing our strategic initiatives on increasing direct to consumer sales productivity globally.

Speaker Change: And improving profitability through business and portfolio optimization.

Speaker Change: We remain fully committed to maximizing our potential and creating significant value for our shareholders in the years to come.

Speaker Change: And with that I will hand over to Dennis to review the results in more detail and share our outlook Dennis.

Dennis Eagle: Thank you Carlos and good afternoon.

Dennis Eagle: As Carlos mentioned Q4 revenue increased 5% in U S dollars, reaching $932 million.

Dennis Eagle: Driven by the acquisition.

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Good afternoon, everyone. We are wrapping up first day with ours.

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Speaker Change: Speaking of operational resiliency I'm glad Julia has allowed voice because the mic went in and out there a little bit.

Speaker Change: Good afternoon, everyone.

Speaker Change: You all being here today I know, it's been a long day, but I sat into all the.

Speaker Change: Questions that I thought was very interesting and informative.

Speaker Change: I am very excited to introduce our next set of panelists.

Dennis Eagle: We heard in the prior panel a lot of pachelbel token Jose Shanteau colonization of equities real world asset stable coin.

Dennis Eagle: We're going to do a little bit deeper into the design structure of distributed ledger technology networks and operational resiliency.

Dennis Eagle: I'm going to quickly introduce my panelists.

Dennis Eagle: We have three shetty who's joining us virtually he had some travel delays and wasn't able to be here in person, but I love that he has made himself available to join us virtually ratios with can access.

Ken: With J P. Morgan and then we have David Missouri is professor of computer Science at Stanford University and question Adam.

Speaker Change: So at Bank of New York.

Cavite Jane: And I am Cavite Jane him with the board of Governors in D. C. I oversee the innovation policy group there now also co chair.

Cavite Jane: All reserves novel activities supervision program.

Cavite Jane: So before we start off with our discussion I'd love for each of our esteemed panelists to give a quick intro and tell us a little bit about how you all are engaged in incubated Ledger technologies. Your organization on just you kind of give the audience a flavor.

Speaker Change: Why you're interested in this topic. So question why don't we start with you sure.

Ken: Hi, everyone a question Adam.

Ken: Got it.

Murray: I am Murray Chief Information Security officer for the digital assets business.

Murray: I wake up every day nervous.

Ken: But at the same time confidence and where the technology is going and why we're doing these activities, but yes. My responsibility started a few years ago, specifically focused on.

Ken: An idea that the largest custodial bank in the World will now look to custody cerium and bitcoin currency.

Ken: And.

Ken: Why not 50 trillion assets under custody large bank a bank.

Ken: Heavily regulated many systemic controls.

Ken: He said that this is the right opportunity for us at the bank to move forward with this technology.

Ken: And the bank has had a history of what started off as paper luxuries.

Ken: I see it every day when I come into the offices on the glass you can see the original ledger Ism Alexander Hamilton therein.

Ken: And you can see the progress of technology from paper ledgers to igloo mainframe computers to distributed systems container systems and now.

Ken: Sure.

Ken: Ledger technology on what changed is just the natural evolution of technology and of course, we're well positioned but of course.

Ken: Can't just left.

Ken: Wonderful people in the business side come up with ideas and let's figure out how to <unk>.

Ken: And developed these technologies without Bacon security this in.

Speaker Change: On one principle that we have at the bank of New York and most most large enterprises don't look at security as an afterthought don't just look at it as a cover sheets penetration patched or red team activity.

Speaker Change: Partner with your development team partnering with your business from the beginning if they want to have crazy ideas of embedding QR codes.

Ken: Understand why they wanted to do that guide them to do it securely.

Ken: It.

Ken: It's been a journey and I look forward to answering questions and speakeasy.

Ken: Great David.

Ken: I'm, David matures, so I've been doing research and operating systems distributed systems.

Ken: Computer system security for.

Ken: 30 years.

Ken:

Speaker Change: I am currently faculty co director of the.

Speaker Change: Stanford Jujube digital future digital currency initiative.

Ken: And I think probably one of the reasons I was invited you can today. It's also because about 11 years ago I was involved in.

Ken: A blockchain called stellar that kind of tried to answer the question. What if you wanted to trade through claims on a real world assets that are worth many times the value of the underlying crypto currency or what if you don't want to have people involved in the governance of the blockchain, who don't want to.

Speaker Change: Lots of crypto currency.

Ken: Their balance sheets.

Speaker Change: I guess, if I had to fill up with like one principle that ive drive from like the <unk>.

Ken: 30 years I've been.

Bob: And Bob and Peter Science Research I would say that.

Ken: That.

Ken: It is important to shrink.

Speaker Change: The trusted computing based part of our systems that we really need to get better security critical.

Speaker Change: Not just because it makes the smaller attack surface, but also because it promotes innovation right because in all the parts that you don't trust more people can come along and innovate in that could lead to really exciting results.

Ken: And I'm going to double click on that a little bit because that's a very.

Ken: Provocative thought right there.

Ken: Suresh.

Ken: Thanks for inviting me.

Ken: I apologize for not being there in question actually.

Ken: Interesting because the reason I'm not there is just that.

Speaker Change: I was actually in Asia, particularly in India, where Chris.

Ken: There's an enormous amount of focus and interest and generally payments and very specifically a pinch with laser technology.

Ken: In terms of my background. This is by 2050 or in the bank.

Speaker Change: I've been a senior manager in charge of development of our architecture and our capital markets groups.

Ken: And demand as.

Ken: As well as operational risk.

Ken: And about <unk>.

Ken: Now about eight years ago or so.

Ken: We started our journey with <unk>.

Ken: It should be a Lego block pain Jpmorgan was one of the founding members of enterprise it doing the lines.

Ken: We started our work then as context looking at the he'll be on the Hill and since then we have really focused in on creating business value. So we've moved away from a pure research in the.

Ken: Obama work to more of a view of where can we create business value to date I believe we're the largest.

Ken: User of blockchain technology in the World, we have one five trillion.

Ken: The notional assets on the chain from our market groups and were doing about $1 billion a day in our payments transaction flow on blockchain as well so both a.

Ken: Early adopter as well as a user.

Ken: And in a blockchain technology industry in the last few years and many of the palace.

Ken: That's come before us as well as.

Ken: I think many of you in the room, we've partnered with as well as had meaningful discussions in terms of automotive for.

Ken: This is a pillar of our payment technology number one as well as in a couple markets groups as well as some of the other lines of business with J P. Morgan is product.

Ken: Okay.

Ken: Great.

Ken: So operational resiliency, obviously is a critical consideration for any infrastructure technology in financial markets, particularly you know in our context, when we think about a lot is banking.

Ken: Proponents of distributed Ledger technology claim that the features of the technology like Decentralisation enhanced strongly.

Ken: Bankruptcy.

Ken: Strengthen the operational as they wait and see.

Ken: Guilty networks.

Ken: And then on the other hand, we all sit here you know decentralisation creates kind of multiple.

Ken: Borrowing abilities of point of attack in Paris.

Ken: Can expose new risks, particularly as it relates to cyber security.

Ken: Let's start off with just interested in your thoughts from your perspective kind of what are the how do you think about these benefits and risks and trade offs.

Ken: Sure why don't we start with you sure.

Speaker Change: There's going to be an interesting discussion here because I know that you said.

Ken: Let me, let me, let me rationalize vis a bit for everyone like decentralized technology is a wonderful thing.

Ken: No.

Ken: Spreading out the attack surface.

Ken: But at the same time I look at it as.

Ken: No.

Ken: Parallel to nature right. So.

Ken: The more exposure software is also open source out there visible the more taxes going to hub.

Speaker Change: More attacks more vulnerabilities are found faster.

Ken: More improvements are made upon the technology.

Ken: I do feel that any decentralized technology.

Ken: Can expose technology will have benefits from that.

Ken: Comparing it to.

Ken: Even down to the underlying key management.

Ken: Decentralized technology.

Ken: The best key protection for signing transactions on letters.

Ken: Is a decentralized your key as well don't hold your.

Ken: Assets in this.

Ken: One single spot right. So you have.

Ken: A lot of threats out there specifically out too where people are losing quite a lot of.

Ken: As such with mistakes and mistakes surround.

Ken: Ceremonies or processes, where their underlying weaknesses, just one single point of failure at a transaction level.

Ken: Compared to centralized technologies, where okay, there's maturity and knowing where you are.

Ken: Traditional perimeter is knowing where your resiliency barriers or your own controls.

Ken: The two are different different aspects of the technology benefits.

Speaker Change: Benefits and weaknesses.

Speaker Change: Appointment of decentralization.

Speaker Change: As a way to constantly improve.

Ken: On the vulnerability surface area of the technology.

Ken: Okay.

Ken: David.

Speaker Change: I mean I think that.

Ken: There is we have we can address this question at multiple levels.

Speaker Change: The panel.

Ken:

Ken: And I mean, one of the things that you might worry about with.

Ken: Decentralize technology is just kind of availability is no longer under your control right. So like if you are a bank and you were to put all your account balances on a distributed ledger.

Speaker Change: Distributed ledger word experienced downtime in your customers would show up and say I would like to withdraw their money and you say why I can't give you your money right now because the lender is down because.

Speaker Change: Plus one of the other banks that are participating as ledger have like Michigan figure. There is just not it's not like we're fine we're just waiting for them.

Speaker Change: Might not be an acceptable answer.

Speaker Change: Situation, because like I said, the deposit was like between you and the customer. So you have to be able to kind of operate on it. So thats one level on which you have to worry about things.

Speaker Change: On another level its just that kind of as I was saying that like if you. If you decentralize thing because that means that kind of the trust of course smaller red because not all of the people who are operating the system are no longer fully trusted. So now you have way more opportunities for innovation and that's great. But it also means that you have.

Speaker Change: Innovation in fraud and of course, we're seeing plenty of this in the blockchain space right like it's like the bugs out he has built in security vulnerability exploit it you still crypto currency or.

Speaker Change: Some other asset a token on the blockchain right.

Speaker Change: There's your bugged out to you right there so.

Speaker Change: So that means that there's a lot of things.

Speaker Change: Like.

Speaker Change: As a society, we tolerated sort of extremely on hygienic approaches to computer security and a lot of situations, particularly with respect to kind of.

Speaker Change: User interfaces.

Speaker Change: I mean just.

Speaker Change: Constantly dismayed by like what companies are like training users to do things like quick links in E. Mails like I can't tell you how many times I've gotten a phone call for someone about from bank of their calling back and they say okay. Now. Please tell me your social security number so I can verify your im like well you called me I'm not going to give my social security number that someone who called me right.

Speaker Change: But like a lot of people just consider that that normal rate or like I mean, I remember too to pick on one thing like a major credit card for a while assessing where if theres a suspicious transaction.

Speaker Change: Pull up and I frame that would ask you for like you break date of birth or something else and so you didn't even know where this iframe was and then when I when.

Speaker Change: When I looked at the source code to the website it wouldn't even when he was like some domain name that I had never heard of it wasn't like the name of the credit card company. So.

Speaker Change: People find this kind of accept the one we're training our users to do this to kind of expect that they never know like what's happening.

Speaker Change: And I think the good news here is that there is low hanging fruit you know I was in.

Speaker Change: China, a few weeks ago and.

Speaker Change: I was using only pay for the first time, so I'm not.

Speaker Change: Extensively experienced with it.

Speaker Change: So maybe take us with a grain of salt, but I thought at a high level things.

Speaker Change: Interface seemed really well thought out.

Speaker Change: Ah 60, Japan that is just for Ali PE and the only time you ever pay anyone is when you see a screen about what youre going to do and then you enter that 60, Japan on.

Speaker Change: On that same device and so because youre always going through exactly the same flow and seeing the same information in the same format when youre, making a payment it's.

Speaker Change: It's going to be much easier to notice if something weird is happening.

Speaker Change: But unfortunately for.

Speaker Change: Various reasons some of them historical some of them just kind of really unfortunate priorities people have.

Speaker Change: We don't seem to think enough about the human factors and like well, we're actually training our users to do and then we try to compensate for with all these other weird things I think theyre not 100% effective.

Speaker Change: You mentioned.

Speaker Change: Malware and I mean, a lot of.

Speaker Change: Cyber risks just shy just creep into very traditional methods quite beneficial ruling or <unk>.

Speaker Change: Are you getting your own personal detail on other phone calls just someone and to buy that happened by MIT attacks that happened last month, a few weeks at a $1 $4 billion worth of Brookdale still Lynch and transactions you know on a distributed ledger network irreversible that's counted as it as it.

Advanced feature because it creates a permanent <unk>, but at the same time, when something like that happens and the assets are.

Speaker Change: Last and on a.

Speaker Change: Which is very different from Cushing say, an IBM share kind of someone you know it must click the R&M as a policy transaction or a fraudulent transaction you know.

Speaker Change: So agent always notice.

Speaker Change: Oh for sure. So how do you think about security from you know from that perspective that even traditional methods can bailey.

Perpetuate our scan Ken.

Speaker Change: Attack or scale or harm the operation for a network like that maybe thresholds start with you and then Christian interested in <unk>.

Speaker Change: And then what's definitely I think that.

Speaker Change: When David and and.

Speaker Change: You were just talking about security one of the things Thats actually interesting is is that when you looked at the landscape of what we're trying to do it's not just the JP Morgan chain or the back of the new opportunities or coinbase, that's impacted when we're interacting.

Speaker Change: With with transactions as increasingly becomes chain of change.

Speaker Change: Even if your.

Speaker Change: Securing your own network or you start to progress as we start to expand.

Speaker Change: It becomes very interesting in terms of how you create that or you identify that surface area that is under attack now.

Speaker Change: Interestingly is that we're doing quite a bit of work with value.

Speaker Change: And.

Speaker Change: The <unk>.

Speaker Change: The discussion again around J&J, and where does your transaction, starting then and where does that transactional boundary.

Speaker Change: Start to integrate actually is also something that where we are.

Speaker Change: Very aware of.

Speaker Change: Now in terms of.

Speaker Change: Very specifically, what we're doing as a bank in terms of.

Speaker Change: Identifying and addressing these risks is is that it's very similar to any distributed network and.

Speaker Change: Debt that we've had over the years in terms of.

Speaker Change: Segregation of activities segregation of.

Speaker Change: Infrastructure all of this is things that all of these are things that we are uppermost in our mind in terms of security.

Speaker Change: But there'll be added thing and especially the the reference to the attack that you just mentioned is interesting to us for.

Speaker Change: Another reason is is that.

Speaker Change: It seems that our adversaries are not just going after the infrastructure itself. They are actually going after people and infrastructure.

Speaker Change: You mentioned the phishing attacks that the impact is not just occurring in the office environment, but it's occurring.

Speaker Change: Your homes.

Social networking perspective, as well, because obviously always youre trying to figure out some way.

Speaker Change: Attacking the network.

Speaker Change: A.

Speaker Change: Non traditional matter so we attack that.

We had quite a view of what the attack occurred.

Speaker Change: And.

Speaker Change: Oh, how that OCA attack occurred and it was interesting because ideally they did all the right things.

Speaker Change: In terms of.

Speaker Change: In terms of security so one of the.

Speaker Change: One of the things that we're very interested in is is that how did that it attacks occur.

Speaker Change: It seems to us that there was a fair bit of social engineering, I'm, sorry, social engineering attacks that occur.

Speaker Change: That also led to two.

Speaker Change: After being able to cycle off that money. So again I think it's not just looking at what the traditional manner of attacks Arbor, and nontraditional matters as well.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: I'm going to say this and when they buy a bit attack occurred and just just.

Speaker Change: Familiarize yourselves.

Speaker Change: Goodbye.

Speaker Change: <unk> was a very tar.

Speaker Change: Targeted.

Speaker Change: Technique that was done where everyday if you interact with an application as a human.

Speaker Change: You develop what I call time to make the doughnuts muscle memory and.

Speaker Change: An organization that once a day or once a week dosing once a ceremony to move assets from these wallets this wallet.

Speaker Change: L through that time, you make the doughnuts I'm going in the room I'm doing the following yes, thats right. Yes, that's very quick quickly humans to repeat behavior.

Speaker Change: Get normalized two things, we identified that as a risk in our organization with regards to.

Speaker Change: Custody and moving assets that's a strange.

Speaker Change: The side effect that these threat actors were able to capitalize on where they were able to manipulate the web interface.

Speaker Change: Just changed things enough, where you're not even noticing what youre doing with one little checkbox of one little setting.

Speaker Change: During that time to make the doughnuts move and you don't see that.

Speaker Change: That's how advanced threat actors are going and we have a target on anybody that stands on stage and says we're going to have trillions of dollars of assets.

Speaker Change: No.

Speaker Change: You have to think through all of these stress scenarios and you have to perform a lot of activities like yourself around in <unk>.

Speaker Change: Eliminates the muscle memory, laziness or time to make the donuts and encourage.

Speaker Change: Change in behavior.

Speaker Change: Do not create a single point of failure, where the approval system is the same transaction system move it to a different platform. So that way the interface with whichever hat were subverted or code has changed on our webpage.

Speaker Change: Even if our employees are question something malicious makes its way to which endpoint and bypasses the 2030 40 differential thats controlled before it even gets to the click.

Speaker Change: Yeah.

Speaker Change: Our backs stoppage at <unk>.

Speaker Change: <unk> system that is used to do the authorization that's a different protocol design.

Speaker Change: <unk>. These are the techniques that you have to do when you're realizing that you're protecting the equivalent of goals in our data centers.

Speaker Change: You can't have similar questions on that.

I mean I agree with that I also think that.

Speaker Change: People under appreciate it like really low tech solutions that are like very intuitively obvious and they are very drawn to kind of the shiny new thing and so this leads to.

Speaker Change: One problem being that.

Speaker Change:

Speaker Change: Software development in order to make the software look good people, calling like kinds of dependencies, right and I think we're working on that.

Speaker Change: If you were kind of cold wallet like you know you don't want any dependency is ready just like even if it's annoying to re code everything from scratch like just do it because.

Speaker Change: Otherwise, you'll you'll pull in some I mean, they saw these software supply chain attacks are are quite scary.

Speaker Change: Like yeah slick if like your your cold wallet uses a browser interface or something but I would rather have like a serial CT connected to a raspberry pi in like some ugly thing with wires dangling, whereas if I can just very obvious that this thing is not on the network and dislikes.

Speaker Change: Has a dedicated little screen, where I can see.

Speaker Change: But isn't.

Speaker Change: The friction right the user experience versus B.

Speaker Change: Technology.

Speaker Change: Yes, so I thought I'd argue where when you are definitely one where we're prioritizing sort of like.

Dennis Eagle: Slickness, rather rather than like avoiding error prone patterns.

Dennis Eagle:

Speaker Change: Yeah, Alex that's kind of like a problem number.

Dennis Eagle: But honestly a lot of the suppliers to traditional.

Dennis Eagle: Fintech or just in general software.

Dennis Eagle: As much as it does.

Dennis Eagle: These distributed systems like we can youre, saying like well ledger distributed ledger payments for instantaneous and irreversible that's a choice like it doesn't have to be that way like a stellar my blockchain and asset issuer et cetera, a clawback flags.

Dennis Eagle: Reserve the right to call things back.

Dennis Eagle: They can set a KFC flag, saying nobody can hold my asset unless they see them they know who they are.

Dennis Eagle: But the market the size and in most cases, they don't they don't want that.

Dennis Eagle: So, let's talk a little bit about that because.

Dennis Eagle: And we engage with our supervisors institutions and banks.

Dennis Eagle: Banks, such as the installation Christian your E. All about this and we hear a lot about building walled gardens and white labeling.

Dennis Eagle: Okay, well I say I'd love to hear a little bit about kind of how you. All are thinking about these features just mitigating whatever you call. It to help kind of manage these risks that we're talking about.

Speaker Change: Chris why don't we start with you.

Dennis Eagle: Thanks.

Dennis Eagle: Yes.

Dennis Eagle: So let me start by saying this is Lynn.

Many years ago, we had at <unk>.

Dennis Eagle: Chance to meet with the talent and Joe Lieberman.

Dennis Eagle: And.

Dennis Eagle: Metallic came and looked at now had the chance to come and look at what we're doing at Jpmorgan right now you would say.

Dennis Eagle: This is the farthest thing that you can.

Dennis Eagle: Say as blockchain and so called blockchain.

Dennis Eagle: And.

Dennis Eagle: I'm actually proud of that.

Dennis Eagle: And the reason is is that in terms of what we had to do with the blockchain and distributed ledger technology in order to make it work.

Speaker Change: Christian what they were talking about in a highly regulated banks that are highly regulated environment is that we had to make some.

Speaker Change: Very specific choices to work in an enterprise setting and work in a manner that.

Speaker Change: That.

Speaker Change: It actually.

Speaker Change: We will actually address both the the <unk>.

Speaker Change: Promise of the technology, along with the very real concerns about.

Speaker Change: Security around that technology as well.

Speaker Change: As.

Speaker Change: We won't belabor the point, but for some reason this particular space attracts some of the worst actors and thereafter is not only in the fall.

Speaker Change: <unk> enterprise protection with state actors as well to have tremendous amounts of resources to apply this so I think that as we go forward.

Speaker Change: It's a challenge to us in terms of.

Speaker Change: How we want to do.

Speaker Change: These network so we in JP Morgan, how private permission network, but we want to be able to interact with the maintenance of various protocols and in order to be able to do that.

Speaker Change: We need to be able to number one to figure out how to isolate and segregate.

Speaker Change: Those particular correct.

Speaker Change: Threats that are out there, but equally important along with the.

Speaker Change: Okay.

Speaker Change: So far we've spoken about the of the security aspects of what we're doing for industrial electric perspective, but.

Speaker Change: The operational considerations of having a distributed network were distributed state machine across multiple transactional boundaries.

Very interesting to us.

Speaker Change: And in.

Speaker Change: In order to make that all happen in a timely manner and I know that later on we'll talk about some of the newer technologies that we're addressing or that we're viewing the space I think is extremely challenging to us. So I think we started the migration from sort of a private permission network.

Speaker Change: We would feel comfortable to more of an open environment, where we can bring in other parties as we see fit and goes back to the.

Speaker Change: The point I made earlier about chain of change.

Speaker Change: So I'll turn it back to you.

Speaker Change: Any thoughts question just interested in with bank of New York is doing or what how are you thinking yes, yes.

Speaker Change: So again I'm on the security side.

Speaker Change: I loved it when everything was an internal private experiment I loved it women immediately somebody comes to me and says Oh, we're going to get a token is based in silicon is that and I said okay.

Speaker Change: What's the end state. It's okay. It's just going to be a shadow ledger to our main books and records system, We're just going to test with okay.

Speaker Change: Right.

Speaker Change: And for years that was great, but reality is not all this experimentation.

Speaker Change: It has to connect to.

Speaker Change: Match in a public blockchain and of course, that's what we're doing.

Speaker Change: We are in the custody business for crypto CRM and bitcoin specifically those two.

Speaker Change: One of our deal with the hard for challenges and 51% of attacks.

Speaker Change: But.

Speaker Change: What also worries me is public blockchain.

Speaker Change: And the multiple change I hear happening where the point of failures are gonna be these bridges, where we see them right now with the smart contracts that cannot change when we move assets around.

Speaker Change: Yes.

Speaker Change: You'll see a lot of technology evolving wherever these weaknesses and risks are and so I welcome it.

Speaker Change: Starting to see it now which is right.

Speaker Change: All school ways of applying security and smart contract firewalls and user developing tech like AI firewalls are coming out and people are applying the old way of doing security towards new technologies and I think.

That's a natural evolution, but I do feel that eventually.

Speaker Change: Organically created technology on the block chain to secure more of the blockchain functionality.

Speaker Change: We will continue to evolve and be what gets us there as an institution.

Speaker Change: Yeah. So interoperability, we haven't got a little bit about it.

Speaker Change: Panel talk a little bit about it obviously for this.

Speaker Change: This technology two games.

Speaker Change: Billy scale. There is it is really important to kind.

Speaker Change: Kind of players in the financial markets to operate on a common platform right.

Speaker Change: And then there's also the question of scale ability because as we've seen with some of the larger public networks.

Speaker Change: As transaction volume increases it can affect costs it can affect state so curious.

Speaker Change: David maybe we'll start with you kind of how do we balance interoperability with scalability with speed and cost.

David Matures: Sure well, there's been a lot of agreement on the panel so maybe I can spice things up and pick out more.

David Matures: Controversial position. So so let me let me first of all I will say that like lets say youre going to run you know private ledger, because you're like a bank or something.

David Matures: Actually a blockchain is probably the best way to structure that ledger, even if theres no not with distributed consensus and the reason is that when you right now if I make a deposit.

David Matures: Bank, where I like they'll give me a receipt or something but this is a piece of paper I can't prove to other people that that transaction has happened.

David Matures: And what's great about our blockchain is that it's auditable right.

David Matures: I can say like hey.

David Matures: I just transferred money into your account now I can prove it to you because of having a sign.

David Matures: Block from the block header from the bank and I can you know if its structured properly I can kind of drill down and prove that this thing actually happen and that is that it.

David Matures: Super important because it can trigger actions and other systems that will do things in response to those kinds of actions and the second thing I will say that I think is really kind of an untapped game changer in the blockchain space is that the ability to have public watching public blockchain allow you to.

David Matures: Our committed atomic transactions across multiple systems and organizations that weren't ever intended to inter operate right. So you can imagine a situation where imagine if sort of like an <unk>.

David Matures: Airline and hotel and like some a concert venue they all kind of integrate with some blockchain, let's say like we're willing to kind of participate in a protocol, where we don't know what the other parts of the transaction are but we're willing to kind of be part of an atomic transaction now some third party can come along and say Oh, great I'm going to sell people like a plane ticket.

David Matures: While room and the concert ticket all at once in a bundle and make sure that like either all of those trends purchases go through none of them go through because you don't want to kind of like leg into that position and have some tickets to a concert that you cant turn.

David Matures: So this ability to have.

David Matures: To have basically like all these systems that today, you can kind of maybe they have an API adjacent API you drop rate with them Tomorrow, you can say not only can I answer operate with them, but I can get them to promise to commit some transaction within the next 30 seconds something commits to a public blockchain right and now that same thing commenced watching.

David Matures: Can trigger.

David Matures: Atomically things happening on these other systems, even though they weren't intended to inter operate.

David Matures: I think I would just open up a whole new class of applications and efficiency.

Speaker Change: We just announced today.

David Matures:

David Matures: Bank of New York publishing.

David Matures: Var.

David Matures: On.

David Matures: Public blockchain for.

David Matures: Customers like Blackrock, and others, where normally you calculate bar and publish it.

David Matures: It's a traditional born banking underwent all the assets that will have an underlying.

David Matures: <unk> you have to calculate the.

David Matures: Price and you have to put it all together.

David Matures: National IV.

David Matures: The delta between your liabilities.

David Matures: Published as far now we do it when we connect our inner workings of the bank and all the traditional systems when we put it on the blockchain ounce immutable published now it can trigger to your point, yes automated activity based on that var. It's the bridging between traditional and now.

David Matures: It's going to have more and more.

David Matures: That's one point.

David Matures: I guess so.

David Matures: And if you fast forward 10 years from now and you know in publishing.

David Matures: Boris and net asset values on a public blockchain is kind of a common thing.

David Matures: Back to my kind of question about how does that affect does it affect.

David Matures: Speed and cost and at what point kind of dissipates, a point, where it's no longer a constipation.

David Matures: Speedier fast enough.

David Matures: Well I'll make a point about efficiency, which is that.

David Matures: You know most blockchain have just done it wrong in terms of.

David Matures: Scalability right. So there's this.

David Matures: This is kind of.

David Matures: Famous.

David Matures: Rule in computer science called the acute called the scalable community says if you want to.

David Matures: Have a system that can be paralysed across many different cpus efficiently the operations that youre doing it to be community or in other words, no matter, which order you do them and you need to kind of get the same outcome.

David Matures: And the problem with most block change is that you have a sort of like fairly restrictive in their modeling <unk> based change that they're not.

David Matures: Fully expressive smart contract you Couldnt implemented index or something.

David Matures: Or.

David Matures: They basically have a semantics that like you issue a bunch of transactions and you kind of execute them one at a time right and so maybe if the transactions don't.

David Matures: Conflict and you can detect casino conflicted kind of farm the Matamoros Cpus to multiple Cpus, but.

David Matures: Everybody wants to pay the IRS April 15th like that's going to be a whole lot of contention for that one account balance at the IRS and Thats just not going to work.

David Matures: And what's worse often the way you do these things is with what's called are optimistic.

David Matures: Currency controls that you kind of like you'll try to update stuff and you'll detect if there's a conflict and then you'll you'll kind of pullback, but if everybody is paying paying the IRS like that optimistic that optimism is not not warranted.

Speaker Change: So what one of our recent PUC graduates.

David Matures: And for Jeff Ramsey are proved and his dissertation.

Speaker Change: Is that you can design interfaces to blockchain, where the operations are completely communicate and you showed that you can do this even in scenarios, where you would think that the workload is inherently cereal like for example, it's true multi asset distributed exchange you showed how you can actually paralyze the stuff, but the bad news is you don't have backwards compatibility.

Speaker Change: <unk>, where you need completely new interfaces to these things, but in fact, it turns out that is practical and so my hope is that.

Speaker Change: Once we start improving that this is possible that is going to change the architecture of some of these systems and we will see way more scalable.

Speaker Change: Blockchain, both public walk ins and that this would be a suitable way to design. Your private ledger. If you want your private ledger to kind of offer transaction proves that can be used to trigger actions and other lenders.

Speaker Change: Forgive me I am sorry, I'm talking about environment and the whole time, because my brain was on your next question which is.

Speaker Change: We have scalability and I'm hearing.

Speaker Change: One other one just stepping back a bit from the transaction forget about the blockchain for a second I had this moment.

Speaker Change: We're on scalability.

Speaker Change: What do you think a notional value of our blockchain transaction maximum should be.

Speaker Change: But what do you think it should be.

And I always argue with myself I call it crypto transaction bar, which is.

Speaker Change: Is it sort of $1 million payment is $10 million payment, where do you set. These limits is a one $5 billion that is one click away.

Speaker Change: I mean, what's the what's the most you can write a check for it just depends how many series you can put it right.

Speaker Change: So.

Speaker Change: Pivoting from scalability to like the risk of how big do we scale in a transaction.

Speaker Change: How much should we so there's got to be a crawl walk run <unk>.

Speaker Change: And I do understand why we have certain limits around $1 million payment of $10 million payments and certain risks and thresholds for counterparty and claw back but.

Speaker Change: But in crypto, we definitely have to crawl walk run unlock genes, but there's nothing new about velocity limits. I mean, this is kind of a basic smart contract.

Speaker Change: A lot of people.

Speaker Change: We have implemented right so.

Speaker Change: You could argue that like more people should use. This then we should we need like some kind of better norms around this stuff, but it's not a technological problem I don't think so.

Speaker Change: Okay.

Speaker Change: Let me just expand this a bit I mean, it's interesting question that you just brought up.

Speaker Change: We talk about.

Speaker Change: Change that would talk about the promise of having multiple <unk> type companies on this network and so forth.

Speaker Change: Let me ask the question a different way is is that when something goes wrong when do those smaller companies walk away when do they declared bankruptcy. We have this thing within JP Morgan that every member of our team.

Speaker Change: Payments environment they.

Speaker Change: They have to meet a certain SRA.

Speaker Change: The service security obligation and if there are compromises in a certain way then there's insurance and tied to that.

Speaker Change: The company right now.

Speaker Change: Wow.

Speaker Change: When you go into a distributed environment, especially a defined environment. Some of those companies that we're interacting with are much smaller than jpmorgan much much smaller so to get to your point about how big does that transaction.

To occur or how big is that limit.

Speaker Change: I would suppose that.

Speaker Change: That's one part of it is risk taking and other parties that when do you think that that vendor on the other side of that transaction is going to declare bankruptcy and say this is a $500 million change I mean, New York transaction, Yes, I did something wrong, but I'm walking away because of macro from my company with process.

Speaker Change: So that's also an interesting sort of threat in terms of.

Speaker Change: It only what youre doing to protect yourself, but who are the other players are or partners are on that team that youre interacting.

Speaker Change: Well actually it so I think maybe we should like break the question into this question like what should the maximum transaction fee. So this one question is what is the kind of <unk>.

Speaker Change: Security Trustworthiness solvency of like your counterparty.

Speaker Change: And another is like well what could go wrong kind of layer.

Speaker Change: Layer, one within the blockchain itself right and so for example, how many like USB C. Shouldn't you be able to kind of have on the blockchain, while at that kind of depends on the balance sheet of circle right.

But then if you.

Speaker Change: If you're asking like well at what point should.

Speaker Change: An organization like circle feel uncomfortable looks like there's too much volume and their asset on a blockchain that actually was one of the the kind of questions that inspired me.

Speaker Change: Stellar in designing the consensus protocols so.

Speaker Change: And now like forgive me for like talking up.

Speaker Change: Research for like what the problem that I saw and other blockchain is that well.

Speaker Change: At the time, let's say like Bitcoin had a certain.

Speaker Change: Market cap rate and the security of the bitcoin blockchain dependent on the value of those big clients are and then it could split is it data into big quite a bit quite cash and then we were kind of contemporaneous with the theory, but like that also split into theory of material classic.

Speaker Change: And obviously any kind of split like that as catastrophic if you've issued a $1 billion of some like redeemable asset you can duplicate crypto currency you can't you can duplicate the claims on the dollars and you can't duplicate the actual dollars that are backing those claims.

Speaker Change: And so the solution that we came up with or that I came up with for stellar was to be inspired by internet routing and the way. The Internet holds together as a single network is not that there was like some organization says your tier one IC you should hear with like these people in.

Speaker Change: And so on it's just these pairwise decisions of networks to enter into peering and transit arrangements.

Speaker Change: So the way stellar works. Unlike these other blockchain is that are proof of working through the stake is that each organization. The size. These are the organizations that I want to be using the other people I want to agree with on the network right and so.

I wanted to make sure I agree with at least five hours out of the seven organizations before I like reach consensus in like a validated a bunch more transactions.

Speaker Change: So the nice thing about this model is first of all now we're relying entirely on the real world reputation. We know who these people are in like what their stake.

Speaker Change: Yes.

Speaker Change: The network and so for example.

Speaker Change: If if you wanted to.

Speaker Change: Issue 1 billion or like a trillion dollars worth of some stable point on the Star network, you might say well look at all these validators there actually is run by smaller companies like we don't trust them well great. What you would do is you run the Validators yourself now you're in control of this validators and you can keep them secure and you tell everybody Hey, if you want to redeem a trillion dollars in assets that I have.

Speaker Change: Just issued like you can do it by sending the asset back to us and by the way, we're using our own validators to decide whether you actually didn't send that back to us. So if you care about getting paid in our assay to redeem our asset make sure you agree with our Validators right.

Speaker Change: And the nice thing is now because you are so important that you put out a trillion dollars of course everybody's going to say Wow. This is like the single most important player in this whole like stellar ecosystem of course, we want to configure our service to make sure they agree with us.

Speaker Change: Big asset issuer.

Speaker Change: Fascinating I promised Juliana we would have we would leave a little bit of time for questions and Allegany Stephen Bruce Klein So.

Speaker Change: Julia do we still have time for a couple of questions.

Speaker Change: Yeah.

Speaker Change: Okay any questions from the audience.

Speaker Change: Yeah.

Speaker Change: Yes, Jamie.

Speaker Change: This is really really helpful thing through and you know I'm hearing a lot of kind of the business applications from the technical details on one of the things I hear is potentially there is attention of.

Speaker Change: A lot of the benefits that I have here is as you can you can prove this publicly.

Speaker Change: That certain transactions that made you can audited it but then what about privacy, how do you overlay that privacy.

Speaker Change: But at many retail users or frankly businesses would be interested in having the public nature of these blockchain.

Speaker Change: It's an excellent question and the first thing I'll say is that it's not too hard to replicate.

Speaker Change: The status quo right. So the status quo is like my bank knows where I'm using my credit card, but like my neighbor dozens right and so if a bank.

Speaker Change: One they're ledger as like a private blockchain they could publish the ledger headers and they can say like anybody who's kind of affected by transaction has allowed to kind of drill down and the merkle tree and like see get proof of those transactions, but you can't we're not going to reveal publicly what the other transactions are and Thats fine and.

Speaker Change: What you can do is you can go there are certain scenarios, where you might actually want to go a step further and say like Oh by the way.

Speaker Change: I'm not going to tell you about all of these transactions and what People's balances are but I'm going to prove to you that I am solvent.

Speaker Change: So.

Speaker Change: One of my colleagues that Denver, Nee and NEP.

Speaker Change: Dependent economies at NYU.

Two years ago had a paper on provision, saying like Oh, you can actually like who without kind of revealing individual details you can actually like prove that your solvency in zero knowledge, which I think is.

Bill: Thanks Bill.

Speaker Change: Zero knowledge proof technology.

Bill: As a way that.

Bill: We'll see.

Bill: Way of making sure that there is some level of not exposing the full details of what it is but being able to prove that that transaction.

Bill: It's accurate.

Bill: I do think though.

Bill: Youre right.

Bill: Committing to currency values on the blockchain and making transactions.

Bill: Anything is traceable theres enough in cyber security I've learned through signals analysis and of course with.

Bill: The advancement and other technologies like AI that.

Bill: There's companies out there that would trace anything you can from enough transactions that you see on the blockchain you can pretty much get attribution of who the entity to us and there's other techniques that.

Bill: That you see around dusting and others, where you know you can know who is the owner of certain wallets and then from there you can reverse transaction. So it is a challenge if you want to be private shipping the whole points to the blockchain at least.

Bill: And the current it is it is.

Bill: Intended to be public so.

Bill: Yeah.

Bill: More questions.

Bill: One question.

Bill: You talked a little bit about bridging like what.

Bill: I mean, what is it some of the current thinking when you have there is some sort of off gene.

Bill: Activity and then you have something onshore. So say you had payment occurring more chain like overstate that wire funds or something like that and then.

Bill: Delivery occurring over.

Bill: Over one of the blockchain protocols.

Bill: What do we need to have on the on the off chain side to kind of make that work. Yes. I mean, that's why I was advocating for off shape for blockchain is a private blockchain fed wire, where blockchain you could have a smart contracts on the theory that will deliver some assets you if theres proof that something happened that fed wire fees.

Bill: What is the operating system they provide.

Bill: Well, so what you need to do is provide concise prognathous provide sort of like periodically.

Bill: <unk>.

Bill: Or otherwise are tested.

Bill: Block header is kind of that are small and then a concise way of proving that given a certain block header like this thing actually happens right and so while our blockchain is a good way to have one blockchain header certify everything and then there's a data structure called <unk>.

Bill: Merkel tree that like makes it convenient to prove that something is in a large set of transactions that I went to verify the whole set.

Actually that's a brilliantly said, David I think that that's exactly what we're doing and JP Morgan.

Bill: Brokerage rapidly securing every portion of distinguishing as a process of transactional boundaries.

Bill: There is a hit in terms of latency associated with that or the transactions. So this again goes to the practical sort of usage of blockchain within the.

Bill: Within.

Bill: Very secure networks, such as payment transaction, and so forth, but exactly exactly with ipsen.

Bill: We're out of time, but I can't resist asking.

Bill: Quickly just 30 seconds.

Bill: Can I keep the timeframe short where do you see.

Bill: The adoption of the technology in banking in the next five years, especially in light of all this type of thing.

Bill: Wow.

Bill: Five years saw okay can I can I view.

Bill: Serious for a second.

Bill: I think everybody got no offense, but stages.

Bill: Went after AI lost so I think it's like a.

Bill: Our blockchain technology.

Bill: But I do think that in the next five years or so.

Bill: Faster cross border payments.

Bill: 82 apply cryptographic practices now run payments instantly without having a subtle and wait for those those shuttles for cross border payments.

Bill: I do think that it's more and more traditional banking.

Bill: Banking type services like publishing and.

And others will now enable more blockchain automation and services.

Bill: So that's my two cents.

Bill: The joke I made about the <unk>.

Bill: Focus on the shiny thing, which is folks are now moving towards AI I do I do think that now.

Bill: The gentex side of AI applied towards block.

Bill: Blockchain technology is just going to explode in terms of innovative ways. We can use and one of the ways I think so in cyber security is to secure smart contracts, which are these single points of contract single points of weakness I think on the chain because theyre just code on Makena.

Bill: Only as good as the best way to Hackett, and crack and hopefully prove that it hasnt been some burden.

Bill: But I do I do look forward to the convergence of those technologies.

Bill: I agree with Christians prediction about things like <unk>.

Bill: Blockchain excuse me much more useful for things like cross border payments. Your question was about banks, though.

Bill: And so like I think the big question is like.

What is what is the role of banks and I as a technologist understand very little about banks and what all of the employees of banks do all day.

Bill: And nobody is going to go and I didn't want to answer it with the receipt of bank in five years.

Bill: And so you know so so my hope is that like yes, either banks will be involved with this or that they will feel a lot more pressure to compete because there will be alternatives to banks and that that will cause banks to offer.

Bill: More convenient and cost effective services I couldn't answer that.

Bill: Yeah.

Bill: Let me <unk>.

Bill: We are.

Bill: The largest private bank I would say so I would say this is is that.

Bill: And I won't go five years, because our time horizon or a much smaller 18 to 24 month time horizon. Okay. That's why we look at it that's a window.

Bill: Say that.

Bill: The reason the bank's existed around trust.

Bill: Between two parties and going forward I think given everything that's happening in this space, it's going to be about trust.

Bill: Yes.

Bill: Respectfully say that there is a place for large banks in the space.

Speaker Change: Of the amount of our prospects involve between transactions I will tell you that.

Bill: We're looking at you know one of the questions that we would.

Speaker Change: We're supposed to talk about or around the future of this space.

Bill: I'll leave you with two thoughts.

Speaker Change: One is around quantum computing.

Bill: Right, which is extraordinarily interesting.

Speaker Change: And the second thing is in and around.

Speaker Change: Privacy piece of this and how we can actually leverage both privacy quanta and Roxanne together, so not a singular technology, but a confluence of multiple technologies together.

Speaker Change: Fascinating I know we can go on for a very long time.

Speaker Change: Oh four minutes over so, let's let's give a round of applause to our total ankle products.

Speaker Change: We have time for just a quick little stretch break we need you all back in these seats at 315 for that's fine I'll stretch the day, which is paper presentations of three very impressive academic papers all relate.

To the topics we've covered this afternoon, so I think yeah.

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Speaker Change: Hey, Kevin.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Hello, everyone. We are.

Speaker Change: Wrapping up our first today together with a session that we are very excited for them. Many of you are aware of the process of call for papers, where we basically send out.

Speaker Change: Areas that we're interested in hearing more research and and we had a call for papers out for this conference and these were three of them.

Speaker Change: That's impressive papers, we received this year and we are really excited to highlight these academic places for you and our collaborator Todd Feldman from San Francisco State University will be leading the discussion and moderating and basically what we'll be doing is going through three different papers and after each paper presentation. We will have time for a 10 minute Q&A or so.

Speaker Change: So as each of our academic speakers are presenting police marinate and think about the questions you would like to ask at the end of the session. Thank you.

Speaker Change: Yeah welcome everybody. Thank you were saying for the last panel, okay, keeping knife in late.

Speaker Change: Academic theory theoretical papers.

Speaker Change: But yeah, well enjoy the enjoyment.

Joe Lieberman: Joe We've got three great papers.

Joe Lieberman: Read through them and anytime I have to think about I think I always find that the great thing about what had been paper.

Joe Lieberman: So let me introduce our distinguished researchers.

Speaker Change: Shockwave associate professor narrow financing in the Comscore business at the University of Texas Austin.

Speaker Change: You mean, just finished testing some research on silicon ization platforms addressing some complex switching platforms and users.

Speaker Change: Gustavo.

Speaker Change: <unk>.

Speaker Change: [laughter] Associate Professor of finance at Santa Clara University, as a leading school of business.

Speaker Change: If that was a great paper on crypto currency data and I'm kind of looking through the holes in that and we have Alan churn off of visiting our assistant Professor at the college of New Jersey I'm looking.

Speaker Change: Very interesting topic on I guess with term using pepto whales.

Speaker Change: And there is kind of influence in the market.

Speaker Change: And so together.

Speaker Change: I think I can provide some great insights.

Speaker Change: I'd like to welcome Michael to kind of walk us newspaper.

Speaker Change: Okay.

Speaker Change: My personal opinion.

Speaker Change: Okay wonderful. Thank you so much for having me an appointment to speak at this conference.

Speaker Change: The joint work with Weifang at Princeton University.

Speaker Change: So the more faithful for this paper basically two important trends one is the growing popularity of crypto currencies and tokens and as we see this research interest, especially in recent months. So as we can see from here, it's about like 4000 tokens or so back in 2020 number has grown over it's like around 18000, or so active crypto currencies as of.

Speaker Change: April 25, I looked at a few days ago on corn market cap. It was that sort of a growing sense of a conflict between users and platforms in terms of use of their data.

Speaker Change: Theres been a.

Speaker Change: Regulatory intervention understanding whether or not some types of platforms may have addictive content, whether or not they're using their data properly and historically we've seen some large companies you may have heard of they have changed their terms of services. They may have said they were not using your data. It turns out they were selling it to a third party. So we kind of wanted to think of this paper as trying to explore how a new.

Speaker Change: <unk> innovative arrangement between platforms and user switches decentralization, maybe a way of resolving this conflict.

Speaker Change: And so cripple Creek technology makes that possible.

Speaker Change: Otherwise controls and process and set up a bunch of pre.

Speaker Change: Pre coded algorithms.

Speaker Change: As part of its going to be the excitement going back to pick points. If you read the original white paper by Satoshis Nakamura, he's going to take a bunch of issue with central banks and bank thing that they perhaps have too much control currency too much control of the financial system and maybe it's best to kind of move away from that and move toward the centralization and defy according to Cam Harvey and his 2020 review.

Speaker Change: Articles, so that defy the decentralized the future finance might be the way going forward.

Speaker Change: So platform.

Speaker Change: Well, how does the centralization work well platform developers are going to get paid initially to cash out of their venture either to an initial coin offering in ico or through now what's called an idea where it is.

Speaker Change: Our initial decentralized offering.

Speaker Change: So took mutation facilitates the centralization to decentralized autonomous organizations a D. A M is perhaps the most famous is one of the original ones with Diego going back to the theory of blockchain. So D. A L. If you wanted to make the connection to finance was kind of like a private equity firm set up on a blockchain way back around 2016 and 17 it was shut down because of a hack the hackney.

Speaker Change: <unk> got a tremendous amount of money out of the.

Speaker Change: <unk> for the P. A L and eventually a theorem had the kind of reverse that transaction when a bunch of the validators decided to undo it leading to the fork between theory minutes theory classic.

Speaker Change: So what does it do it essentially governance among users through sophisticated voting mechanisms for instance that could be involved with taking if you take your tokens, you're able to get certain amount of freight you also have governance tokens, which is a different arrangement that there could be tokens for usage on the platform as well as separate tokens, they're specifically for boating and those are sold for instance, like maker J O has.

Speaker Change: Governance token and here are some early examples I've listed including like Shapeshifting tests also talk a little bit about them in a few minutes and as of early 2025. There are over 10000, Diego's matching about $22 5 billion assets. This is a recent paper by we'll call. The most popular type of token that's being issued right now or utility.

Speaker Change: Tokens for users of crews and sort of convenience here for participation.

Speaker Change: A lot of things like a theory and Princess will be concerned utility tokens, they don't pay off dividends, but they're used either for some sort of a peer to peer transaction or for some other service on the platform. So some examples would be like as I said the theory them. You also have browsing with D. A T token gaming with engine you can have oracle's theyre able to verify certain triggers an honor.

Speaker Change: Smart contracts, that's the chain link and you can even have virtual reality with the central land and that's using the man a token.

Speaker Change: So it gives some idea of the motivation again for decentralization I'm, taking a quote here from Erik <unk>, the CEO of safe shifts in what I'm going to highlight is just the second part which is the organizational format that succeeded during the industrial age may not be the optimal format for the digital age is a new kind of affirms the decentralized autonomous organization or T. A L.

Speaker Change: So given idea of how this might work, let's just take tasers. This was a platform that launched in 2017 using ico with it raised about $232 million facilitates peer to peer transactions also lost or smart contracts and the way at the governance at least the last time I checked it's among users who vote in two stages on updates proposed by developers.

Speaker Change: First the developer or put forward a proposal will be looked at by other developers and voted through and then it goes to the broader community and developers are paid and newly meant that tells us it's kind of like a a system where you can imagine if this platform. This fall you get paid as a developer through the token of appreciation and when you lay or sell it off.

Speaker Change: So a conceptual questions. We have in this paper what are the pros and cons of Coke life platforms relative to conventional equity based platforms is the centralization desirable for all digital platforms and how to outside investors in consensus out there is impact decentralization in the casual observation as these two groups are rather important in crypto currency platforms.

Speaker Change: Again, making a bit of a touchdown to finance some of the centralized platforms, you might've heard or for like sushi, swapping Muni swap, which was a centralized exchanges and they do operate through these sorts of D. A L governance mechanisms.

Speaker Change: What are the key insights we're going to highlight we're going to say that there's a fundamental tension between network effects and decentralization.

Speaker Change: Those are going to face participation costs and there can be subsidizing by an owner of the marshaling user to encourage more participation and that's gonna maximize network effects and you can imagine a lot of digital platforms like Google and Facebook are already doing some sort of subsidization. They provide you with free services to attract to whether it be email social media.

Speaker Change: The conventional platform is going to have an owner with equity in control and the benefit of that is it going to subsidize participant.

Speaker Change: No.

Speaker Change: Well.

Speaker Change: Lenders can not necessarily pre commit not to exploit users with profits are low.

Speaker Change: Potential to subsidy to support users in the future is going to be something that provides the friction or a barrier to being able to maximize the utility of that of course, because it is a market equipment.

Speaker Change: So you may say, they're not what users marrow become tomorrow. If it turns out things are not so great. If not there they won't change in terms of services to try to work with them to changing their data privacy practices.

Speaker Change: We'll talk about a little bit about trust in the previous session. The alternative is to have trustless.

Speaker Change: Biopharm through decentralization and we can have that because we have the boxing that allows us to pre commit to some algorithm for how were going to aggregate thoughts not watching.

Speaker Change: This is gonna be appealing when the extensive platform fundamental was relatively weak.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Last quick one.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Sorry.

Speaker Change: You know what.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: Potentially.

Speaker Change: And users in the future.

Speaker Change: So I'm going to show up in the ideal situation.

Speaker Change: There are cases, where decentralization is going to create value both for the time.

Speaker Change: The owner and the user but of course this is an ideal scenario.

Speaker Change: Peter.

Peter: Additional frictions, where do you think about what happens when you have outsiders participating when you have large crypto wells that might be buying up these tokens or speculating or you have consensus validators that may be gaining a lot of power, maybe giving more than 50% cost control platform and this is going to again show that decentralization is very fragile.

Peter: Centralization some form of democratization its very fragile because it's very a lot of different forces.

Peter: Power.

Peter: Yeah.

Peter: Yeah.

Peter: Brief of the lyric.

Peter: Mike.

Peter: There's a lot of recently so.

Peter: There's been a lot of.

Peter: And studying for instance than enterprise.

Peter: Piper Jaffray.

Peter: Like people onto the platform different Kansas.

Peter: Kansas is a way of compensating them on payout.

Peter: Lot of empirical correct.

Peter: The buckets that help quite decentralization has come.

Peter: Lee Dixon D. A L theory.

Peter: So based on I'll give you an overview of those three states.

Peter: One and two at.

Peter: Equals developed permit to screen, so when given the choice.

Peter: It's gonna be equity based platform.

Peter: Equity for bolt.

Peter: They can choose whether to subsidize participation.

Peter: The amount of money.

Peter: Hidden costs.

Peter: The comparable.

Collect these are both dates and the fees are kind of percentage of the total surplus create on the platform.

Peter: Unfortunately I wonder.

Peter: You may choose exploit.

Peter: Yes.

Peter: Listen the successful initially thought which is.

Peter: Undermining the patient.

Peter: Cause if users anticipate that in the future I might be exploited that's going to make them less difficult comp.

Peter: Comparable networks.

Peter: People on the platform in Italy.

Peter: Itself, it's less valuable Alternatively, there's a token based.

Peter: Platform.

Peter: Why.

Peter: The developer.

Peter: So it's gonna be centralized.

Peter: Sure.

Peter: Dissipation. Unfortunately benefit you avoid that were taken on the cost.

Peter: And he was looking to buy tokens and joining with Taiwan and transact with each other.

Peter: And two.

Peter: So what are your theory users are going to be an individual that's going to have some benefit from being on the platform does it continue with potential users east youre going to face a personal cost cap of joining the platform. He answers or has some endowment endowment. This correlated. So you can imagine I have my own AI, but.

Peter: Common to the platform as a clock common a which is the average of our transactional benefits with each other at <unk>, one and two I'm going to try to meet another user on the platform. If I find another user with some success. The has trading needs with me, we transact with each other and we get some sort of transactional benefit.

Peter: So if match this is kind of how it's going to look like and when it gets some benefit from consuming my own code as well as the good of the personally matched with this kind of a reduced form way of us capturing that there are benefits to being on the platform and that benefit is going to scale with how many other people on the platform so called network effects.

Peter: It's gonna be a cutoff strategy survivor sufficiently high a I am going to get on the platform if not I'm just going to leave the platform and I'm going to assume outside that the outside options just to get zero I think C C.

Peter: So the first best equilibrium is theres some cutoff for the fundamental this is a common a if a S. Greater than this number everyone gets on the platform. We both transact both states otherwise if it's below participation costs are too high and the platform truckers down. So really this is kind of the first fast platform fundamental sufficiently high.

Peter: Everyone is going to participate in everyone benefits from our platform.

Peter: So now we're going to consider the two types of schemes that have with a developer is going to be an equity based scheme. So representative owner holds equity it's going to have full control of the platform.

Peter: There's going to be an entry fee as I said that can be subsidized to remember theres a participation cost of capa, the owner can choose whether or not to provide a subsidy C. So they provide a subsidy they make it easier for each user to participate because uses a heterogeneous those with the lowest values of AI may find it beneficial to join if they find subs have subsidized.

Peter: And just to make things easy we've put a limit on the subsidization. That's C must be very equal to minus alpha kalpa for alpha between zero and one which is not so necessary. It just makes things kind of interesting in the analysis.

Peter: The way that the owner is going to be compensated as the owner is going to charge a fraction of the surplus delta from each of the transactions. So that's gonna be the fees and that time too we can choose whether or not to take a subversive action to exploit user data.

Peter: The exploitive action is taken the owner is going to get a gamma per user and that's just going to lead to a loss of minus gamma per user and in addition to just destroying the overall surplus of the transaction.

Peter: So what is the problem faced by the equity owner Theyre going to maximize the tall profit, which is whatever subsidies they payout plus the transaction fees to get the states wanting to whether or not they just choose to do such a subversion in which case they lose a fraction of this of the surplus from the from the transactions.

Peter: But it gets the benefit gamma and the benefit camera can be seen as just selling off user data are throttling usage on our platform in a way that maximizes time to profits of course, because there's a lack of commitment the owners decided time to whether or not to support.

Peter: And that time wanted us makes a decision taking their time to action is given its users can make a participation choice fully anticipating what the owner is going to do so the subsidy is going to attract users with modest trends transaction surplus, but the possibility of some service in person is effectively acting as a tax on participation.

Peter: So the owner would like to pre commit not to support that because they can't if it turns out that the fundamental as low as theyre going to support the platform users take the store count at Santee and that's been a lower participation. If they think conversion is extremely likely.

Peter: So what's the equilibrium that's gonna be bifurcated.

Peter: If the fundamental is strong enough that the platform is a sufficiently good enough idea a good enough platform.

Peter: Things are going to be fine the owner is not going to subvert or at least in with very low probability it's going to it's not going to support their participation and everyone Cisco's to transact on our platform. The owner gets paid out in terms of transaction fees.

Peter: However, in the subversion equilibrium if it turns out the fundamental is not strong enough the owner of stoping or subsidize participation, but now there is gonna be subversion and this was going to lead to lower participation in the case that some furniture was not going to happen in the first place where we can show in the papers user participation profit and social surplus or all decreasing with it.

Peter: Degree of data exploitation and if the fundamental sufficiently weak the platform, it's just going to breakdown, but that's off a very interesting case.

Peter: So when you have an equity based owner the owner is going to maximize subsidization towards to rebuild or they can they can provide the maximum subsidy, but because of the potential for exploitation. It's going to act as a negative network externality, that's going to lead to lower participation and if the owner pre commit not to use the person that they too.

Peter: Alternatively, you can have a utility token based scheme and this situation, what's going to happen as the owners going to cash out of states at day, one and basically walk away from the platform by selling off tokens in this case the payoff to the equity to the owner is just the token price that they can get time to number of users that participate.

Peter: But the benefit of that as they can't support the platform. There's no chance of subverting because now the platform's operations have been delegated to blockchain and if you want to think about user governance users are never going to hurt themselves. So there's not going to be equity exploitation at time too.

Peter: So users can now buy a token from the platform to join and going to transact with other members of the platform and there is no chance of terrific benefit to the user as I know I'm not going to be exploited the cost of it though is there's no subsidization of my participation, we don't have apple or Google, providing free services I have to buy a token and buying the token this action additional.

Peter: Most of my participation cost so it's more expensive for users to join our platform when it's gonna be token based but the benefit is they know that they're not going to be exploited and you don't have this owner that's gonna say at the platform. This week I'm just gonna misuse your data and there's nothing you can do because you've already joined the platform.

Peter: Some simplifications were similar perfect consensus protocol will talk a little bit about those issues. After we go through the comparison of which scheme is better in a more general schema and quick payouts of token holders will call those equity tokens. After we discuss what happens in the basic utility token case.

So what is the problem for the utility token platform owner Theyre, just going to choose a price for their tokens to maximize their profits profit is going to be the token price times, the number of people, who buy tokens and the number of people who buy tokens, it's gonna be satisfying a aggregation roll up there, but also the price of the token.

Peter: The Marshalls the marginal surplus to the March one user.

Peter: So the price is going to act as a tax on the user because before they were being subsidized and how they have to pay a token price. In addition to the participation path and that's going to further exacerbate the network effect. So in itself. It seems like a pretty bad idea to decentralize because instead of subsidizing participation now taxing participation even more heavily by charging a token priced in.

Peter: In addition to any sort of participation fee they have to pay just to join the platform and operate it. So it seems like it's very costly. So it really has to be the case of subversion is such an issue that this additional cost is overcome by the benefit of avoiding some version.

Peter: So as a token price is also going to be determined by the surplus of the March one user, whereas the equity platform owner was able to extract the average surplus in terms of transaction fees and now the owner is getting the marginal surplus times the number of tokens before they were getting the average surplus by taking a fraction of the total transaction fees or transaction fees.

Peter: They were a fraction of the total surplus before so also the owners, giving up a lot of value by switching to this token based platform scheme.

Peter: So the equilibrium, it's very simple it's the fundamental is below a different threshold. The platform is going to breakdown, but above there's a unique cutoff equilibrium that exists but of course, that's going to have inferior performance compare to an equity based platform on the fundamental is high.

Peter: So comparing the two types of schemes given the level of severity or the amount that you can extract from a user in the case of suburban if a sufficiently high the equities platform is going to dominate the telephone platform. It's kind of intuitive the equity platform is better in many different ways that subsidizes participation. The equity owner makes more money by charging a fraction of the.

Peter: Surplus rather than a token price.

Peter: And as you can imagine the toll our participation on the platform, it's going to be higher.

Peter: Given a if the level of subversion is sufficiently high the token platform is going to dominate the equity platform and the reason being is that the risk of subversion a sufficiently high participation is actually higher on the token platform, even though the token price acts as a tax on participation in itself.

Token platform Creon exploitation by the authority at the expense of inefficiency and charging the marginal use of their surplus rather than game the average surplus the transaction fees.

Peter: Particular zero the developer chooses between the two types of platform should be doing equity platform or a token based platform and of course, you can imagine it's based on expectations. If I think I have a really good idea I have an Amazon I want an equity based platform, but I think it's a relatively speckle the platform. It may not be very good I may have the incentive to exploit users if they too.

Peter: Then I'm going to choose a token platform and this kind of provides our initial prediction, which as a token musician makes sense for platforms that are more speculative, but youre not necessarily sure whether or not they're strong enough to only not only sustained participation but to avoid exploitation and this seems to be somewhat consistent with some of the empirical evidence we've seen silicon platforms tend to have relatively weak.

Peter: Fundamentals at least initially if you look at some of the initial empirical work by Sabrina Hallow, and some others and they document extreme skewed distributions for Ico proceeds.

Peter: Yeah.

Peter: So can we have decentralization that subsidization. So as I said utility tokens are very costly because you get the marginal surplus as being the token price.

Peter: In separate instead, we're going to consider a different arrangement, which are called equity tokens. They provide a convenient sales from transactions like utility token, but they also pay dividends with transaction fees just like under the equity tokens are the equity based system and.

Peter: And we can share with only users equity tokens are gonna achieved the first fast youre going to have the maximum participation and also the Max on surplus created for users.

Peter: However, this is gonna be a very fragile arrangement.

Peter: We just introduced a new type of player we're going to call them, a crypto well or an outside investor who is just there to speculate.

Peter: And assume they can buy tokens, but they don't have to participate on the platform.

Peter: Our key insight is this outside large investor may acquire a majority stake in control of the platform at T. Plus two in this case are not only going to avoid subsidization by having a token based platform instead of the equity based platform, but now you've effectively we centralize the platform because this large investor has accumulated enough tokens to be able to have majority vote.

Peter: Again, when in fact, it's actually a pernicious self confirming prophecy.

Peter: If token users anticipate this large investors can get control of the platform, that's actually going to reduce the value of the token initially making easier for the investor to acquire that control is if I know the investor gets back into control I get back to the situation, where we could have some version if the fundamental is slow and as a user and back to that kind of value proposition.

Peter: Two I joined the platform and hope that the fundamental is high enough to avoid exploitation or if it's low enough. The investor who was acquired the majority stake instead try to exploit me as if there were an owner in the first place.

Peter: This kind of says is assigning cash flow with control rights revives a commitment problem and this revised attention between decentralization and subsidization decentralization is very fragile it doesn't have much subsidization, but it also avoids exploitation. Once you introduce subsidization and you've tried to get more people on the platform are to provide dividends in there.

Peter: Additionally, just utility tokens provide dividend rights or cash flow right you reintroduce the initial tension that was there with the owner in the first place.

Peter: Pre coded algorithms cannot distinguish between users and investors. So when theres voting on platforms right now the way the PEO governance is carried out it potentially allows for this sort of exploitation by owner by investors, who have very large stakes in the platform now there's been a number of proposals like moving towards quadratic voting to try to even it out to make sure that.

Peter: That the governance is sufficiently the centralized and in fact this is an old problem that goes back to like the 18 hundreds back when they were concerned about large investors you have things like graduated boating and corporate control, where after a certain number of votes or a certain number of shares you would lose some of your voting.

Peter: Anyhow.

I'm, sorry, but one minute usher.

Peter: So can we have the centralization with consensus validation for the implementation of a consensus protocol creates unique conflicts between users and record keepers. So we've looked at proof of work historically, we've moved onto PURPA stake. We've had discussions of committee based consensus forgiving controlling cash flow rates of record keepers can also reintroduced.

Peter: Commitment problem in a new form.

Peter: And what we do is we just assume there were a bunch of validators and there can be a real validated that can take control of the platform of potentially exploit users again and we just show that this reintroduces the commitment problem and this is a problem because if people look materially significant control of many blockchain is concentrated among miners or amongst the core developers are amongst them.

Peter: Specific dollar there as in the case of proof of states.

Peter: The final thing I want to say is that.

Peter: Theres been a lot of recent work to examine D. A L. This in practice.

Speaker Change: Practice areas have struggled to achieve the goal of decentralization. If you look at Apple and Brandon for instance, they show extreme concentration control examining 10000 proposals on the 151 kao's work by chance or a franchisee. Another show the theory tends to be very concentrated ball in terms of their theory I'm improvement protocols and recent work by <unk> com.

Speaker Change: We chose the deals tend to have a concentration of about 76, 2% of voting power and just the top decile of boats.

Speaker Change: It's also limited in fragments and regulations surrounding T. A L. So it's still something that we don't have a lot of guidance, but theres a lot of interest.

Speaker Change: So just to conclude the centralization to <unk> comes with costs and benefits. When you enter a new insights are decentralized tokens allow platforms to pre commit not to exploit and use your data, but the cost of not having owner to subsidize participation to maximize network effects.

Speaker Change: Incentive to re centralize the platform can reemerge and reintroduce commitment problem. This can happen with outside investors, who can acquire a majority stake or with consensus out. There is you can attack the blockchain at the usage expense. Thank you so much.

Okay.

Speaker Change: [noise] or are we going to have a presentation and then Q&A after each presentations of any good question for Michael regarding.

Speaker Change: His work.

Speaker Change: It's not.

Speaker Change: Right.

Speaker Change: It all started out with.

Speaker Change:

Speaker Change: Curious if I'm assuming that the <unk> platform has the same fundamentals as equities platform.

Speaker Change: A word that drive users given your model.

Speaker Change: Oh, if they had the same fundamentals correct that's right yet if that's the same fundamentals. They would go for the equity based platform. Because then you get the subsidization from having an owner think of Apple and Google, providing you with free services or conveniences compare to the centralized platform, where the main benefit would be avoiding any sort of exploitation by these platforms. If that's not.

Speaker Change: Really an issue where they're uneven telling you're most likely to go with the equity base.

Speaker Change: Okay and then.

Speaker Change: Let's say as.

Speaker Change: Easiest go to your equity based platform and that's correlated with this X quite patient cost and the incentive.

Speaker Change: Were exploiting goes up.

Speaker Change: Ah down the road in the limit in the model of the users will go towards that <unk>.

Speaker Change: Platform.

Speaker Change: I think that if we think a bit about the dynamics. So after you've been locked into a platform. So this is kind of analysis that we started time over and we said do we go to a centralized platform or do we do a centralized platform, we're making that type of comparison, you would imagine as time goes on it could be locked in by switching costs, so that might make it a bit more difficult so the level of expertise.

Speaker Change: And users may be willing to tolerate goes up when you're more locked into a platform. Alternatively, there's a lot of evidence of like a pernicious effect that increased competition can potentially be platforms to want to exploit users more of this a paper by ESG coffee that shows that are addicted content becomes more addictive like some social media platforms will show you more addictive content, if they're more worried.

Speaker Change: About losing it to a competitor so actually competition between traditional platforms and the centralized platform and actually lead the equity platform potentially lead to do more exploitation, which would hasten the movement toward those tokens tokens ice platforms instead yeah.

Speaker Change: Oh, there's like one question okay.

Speaker Change: And do you have a mic runner.

Speaker Change: Okay.

Speaker Change: Bobby.

Speaker Change: Mike over here.

Speaker Change: Yeah.

Speaker Change: Hi, Thank you for the paper.

Speaker Change: My question is about the ear drops okay. So.

Speaker Change: Most platforms I'm familiar with or at least many have used air drops to subsidize user.

Speaker Change: Actual adoption I'm curious how that fits into your research if that was considered in the full paper.

Speaker Change: If you had anything to say about that as a tool to balance out the <unk>.

Speaker Change: Initial cost of.

Speaker Change: Starting network effects for these token based models.

Yeah. So I mean, a lot of developers have tried using air drops to initially coordinate people on using their platform.

Speaker Change: In the early days like when bitcoin came out here a bit towards the points of Toshi vision to acquire gold and others, where people have tried to create currencies into air drops to get people to join their platform to switching over.

Speaker Change: We use a air drops could be a way to kind of overcome this but at the same time, it's one of those things like a <unk>.

Speaker Change: If you are an equity owner and you don't have commitment necessarily may end up dropping too much spring people. If it's in a centralized platform you kind of have to agree on the level of subsidization is actually an interesting example, it was kind of at the end of my slides I didn't have time to get to which was crypto desktop crypto Dot Com recently had a proposal to re.

Speaker Change: He meant about 77 billion or so kronos coins.

Speaker Change: And that was a way of trying to allow for future issuances as well and potentially ways subsidizing, but that was something that wasn't necessarily fully agreed upon by the whole community. There was a lot of disagreement on whether or not that should be allowed. So when you have a D. E O. When it comes to providing subsidization you would need some sort of consensus I think that's something that's just very hard to get on these sorts of platforms.

Speaker Change: Yeah.

Sean: Okay Sean.

Sean: Yeah.

Sean: Yeah.

Sean: Yeah.

Sean: Yes.

Sean: Yeah.

Sean: Okay.

Sean: Oh.

Sean: More the microphone is not working.

Sean: Yeah.

Sean: Yeah.

Sean: Alright.

Sean: Okay Alright.

Sean:

Sean: Just imagining a world where there is a regulator that can yeah.

Sean: Does this how does it impact.

Sean: Oh equilibrium.

Sean: A regulator that's an interesting question, there's a lot of roll here, there's not a lot of guidance, especially in terms of setting governance theres a lot of.

Sean: Dispersion or heterogeneity in how these platforms to governance, there's a lot of discussion right now what is the optimal way to aggregate boats, what's the optimal way to prevent reset fertilization.

Sean: And so there is currently not like even a self governing board within this to try and establish what are best practices for 10 years, how do you measure concentration as a measure to the ownership of tokens as a measure to be blocks in terms of how many people have similar come.

Sean: Come from a similar background in terms of like how many Dcs do you happen to like Henderson, Horowitz or something like that how many large user traction use the platform. So I think regulation could help to provide guidance in terms of setting up the governance system and potentially could help to make sure that the D. E O S can remain sufficiently centralized.

Sean: Yes.

Sean: Okay.

Sean: Okay.

Sean: A regulator of the centralized platform Oh regular yeah, well, that's a bit easier a problem again is.

Sean: So like with data privacy, we currently have a bunch of fragmented regulation. If the GDP are you you have the CCP a in California, you have other data regulations from Japan, and Brazil for instance that are quite a patchwork in terms of having different types of requirements summer opt in some or opt out so having global regulation or some sort of.

Sean: Best practices to provide guidance and ways of trying to measure to make sure that it is used in a way that's transparent could help to avoid these issues with the centralized platform. So right now I think like the problem is that some more business friendly some are more consumer friendly theres not much addressing with things like dark patterns as well, so I think developing better regulation to monitor central.

Sean: Life platforms, and potentially being alternative solutions decentralization.

Sean: Okay.

Sean: One question.

Sean: Oh yeah.

Sean: How how do you see any interplay between utility tokens and governance to orchestrate because a lot of these platforms have both telecoms kind of in parallel right. Yeah. So again.

Sean: It's an interesting way that the space is evolving so when it was first came out they were utility tokens. They were security tokens and then they were pure coins like bitcoin and what have you and then when they start to think about the centralized autonomous organisations, who had the growth of these governance tokens. The governance tokens, though are not are the perfect solution in part because they're not.

Sean: Necessarily same people as the users like maker Diego if you look at the ownership Youre going to see things like venture capitalists are bank capital for instance was a big one or at some point. So governance tokens are a way of having control of the platform, but not necessarily ensuring that controls in the hands of the uses of the platform.

Sean: The question is what type of total can we create or some way of trying to measure usage, where along with governance or along with voting rights that can kind of make sure that these centralized platforms are on a level playing field and rep receptible with users.

Michael: Any more questions for Michael.

Speaker Change: Yes in the back there.

Michael: Yes.

Speaker Change: So I'm gonna be on behalf or Angela She also probably chicken speak, though much but Ah I can show you the questions and she wants you to be one of the questions for Michael and your thoughts on that question, so I'm going to wash through.

Okay.

Michael: Okay.

Michael: Multiple questions you can see whatever it was.

Michael: Okay.

Michael: A couple of years.

Michael: Uh huh.

Michael: So your research highlights choke transition as a tool for decentralized decision, making mhm M Lite AI driven smart contracts enhance.

Michael: A couple of cases governance model, especially in cross border platforms for regulatory frameworks differ.

Michael: Oh is that the one.

Michael: Alright, great.

Michael: Okay.

Michael: [laughter].

Michael: So yes.

Michael: I think.

Michael: The issue with I.

Michael: I guess credit platform in general is that they are a global phenomenon that doesn't necessarily fall under any specific regulatory review at the moment. So I mean, the potential for I guess being trying to make sure. It's to do real time monitoring and find out the best way to aggregate preferences within the platform, but also trying to figure out the best way.

Michael: To create some sort of either self governance or some sort of global best practices because of regulation would be important I mean, one other issue that comes up which is how they might be or is that it's not necessarily a legal entity. That's able to be presented served in like a court of offerings like in California, There's been numerous losses right now and say, what's the recourse you can have.

Michael: And C E O and Optima sponsored well there at a centralized there like coach essentially is not necessarily a specific owner that you can go after is trying to figure out what the pipeline or to buy a platform as a user how do I go after the platform itself I think regulation can also to try to address that.

Michael: What is the ownership of the platform.

Michael: How does this sort of governance structure fit into our core our current understanding of corporations from a legal perspective as well.

Michael: Yeah.

Michael: Yeah.

Michael: Okay.

Michael: Okay.

Michael: Oh yeah.

Michael: Yeah, that's it takes up our 10 minutes of Q&A.

Speaker Change: Thank you Michael.

Michael: Yeah presentation.

Michael: Okay.

Michael: Okay next up we have a.

Michael: Uh huh.

Michael: Yeah.

Michael: The clicker.

Michael: Uh huh.

Michael: I see.

Michael: I left it.

Michael: Perfect Awesome.

Michael: Alright, well thank you so much for it.

Michael: Okay.

Michael: The program very excited to present this.

Speaker Change: Its joint work with Ipass Shine Darren Yang from initial apps, which is an AI crypto AI company out of the South Bay and what we did is that empirical papers. So no theory.

Speaker Change: Windows I mean windows asked a very simple question really which is how good is the critical data that all of us probably use when we're looking at crypto markets right and crypto data is something that has been trending not just recently, but over many years.

Speaker Change: People are interested in crypto people are therefore also interested in crypto data, but very few studies really analyze the quality of the critical data that exists. So that's what we did in this paper.

Speaker Change: There are a lot of different vendors of crypto data, we considered 20 in our main analysis, which we track, which we tracked over many years or three years.

Speaker Change: Since 2022, and our paper, we just provide kind of a survey up like what the what's the data they offer in which warm over which time frame, which with which restrictions and then we really focused on these eight providers sorry.

Speaker Change: On these aid providers that I highlighted here, so coin gecko quaint paprika coin cap life coin watch corn market cap cryptic impairment, sorry in sentiment and we really dig down and try to understand.

Speaker Change: What they what how is the data out there actually selling these are commercial data vendors. They charged around $700 per month for an average subscription to their data services and we're looking primarily we're only looking at market data. So think of prices volumes market caps. We also looked at other kind of data, but generally this is what they are going up.

Speaker Change: Alright, so what is it that we find.

Speaker Change: Well, what we're gonna document are pervasive quality issues.

Speaker Change: And by within every provider for every metric you can think of I'm going to highlight what these issues are.

Speaker Change: And then what we're going to try to do is to kind of develop a solution to this problem. So we develop an algorithm that allows you to kind of collect data from a bunch of different providers and by looking at kind of the cross section and getting kind of the wisdom of crowds, Hello, basically which data are more correct than others.

Speaker Change: We're going to show the practical benefits of this data of this approach for the computation of returns Volatilities and even simple things just a size rankings and then ultimately we're going to develop kind of a grading scheme to assess the quality of the data that's provided by the different vendors.

Speaker Change: At the end I'm going to talk a little bit about kind of the implications of their results.

Speaker Change: Per applications, but also possibly for regulation in this space.

Speaker Change: So I'm going to get started right away.

Speaker Change: So as all of you know obviously, because we're looking at the market data one issue, we're going to have to deal with us that crypto illustrated all over the world one crypto currency can be traded on many different exchanges across the world. There are many different time zones. So theres no such thing as kind of a unique price for any one of these points at any given point of time.

Speaker Change: So oftentimes if youre running for example, empirical analysis. This was the issue that <unk> was facing.

Speaker Change: Trying to train AI models for crypto currency, what they would do is they aggregate they collect aggregated data right. So it's very hard to just work with data for Coinbase and Australia for example.

Speaker Change: Data could be noisy, but if you have a large cross section of data across the world aggregated and clean and that possibly be really helpful.

Speaker Change: And these data vendors that I highlighted here right. These are 20 data vendors that we considered there are many more that we didn't include in our list what they do essentially is they collect all the data from all the exchanges that they monitor and then they aggregated using certain kinds of approaches.

Speaker Change: Alright.

Speaker Change: No.

Speaker Change: One other questions that we're always facing as dad why.

Speaker Change: Why do we even need these theater vendors right why don't we just aggregate data ourselves right and collected from the different exchanges and aggregated ourselves. This process is extremely difficult to do.

Speaker Change: And if you've tried it and you probably know this.

Speaker Change: Lots of different API, if the data is extremely noisy not easy to do the way we try to think about how difficult it would be to kind of do the aggregation ourselves. It's just by looking at how much money. Some of these companies have rates that are bending selling crypto data.

Speaker Change: So here.

Speaker Change: Sorry to keep pressing the wrong button you can see basically in different stages from kind of seed to serious a how much money. These companies have raised a.

Speaker Change: Compared to kind of the median deal size and the different round. All of these companies are private so far there's no public company yet.

Speaker Change: And most of the times these company rates around the median amount or more suggesting to us that this work that theyre doing is highly capital intensive business is not something that as an individual you could see yourself, even as an individual company you could probably do yourself. This is very difficult work.

Speaker Change: So we take this to mean that these data vendors are really solving for a clear market need there is a market need for data aggregated data and these vendors are providing.

Speaker Change: So then what we wanted to do is to think about how does the data compare right. If you get data from corn market cap, how does it compare to the data that youre going to get from Missouri.

Speaker Change: So that's why what we did over seven years going back to 2022, so actually going back to 2018.

We collected daily data every day for the largest 250 crypto currencies in the market that are present in at least three of the different data vendors that we collect I'm going to walk you through what this image here shows.

Speaker Change: We did this both in bulk so we dealt with it all data at once and then we also need that it sequentially to see basically how the data changes actually download it every day.

Speaker Change: And what we found is that the data across four one coin at the same day.

Speaker Change: Across providers can be batched me different substantially different so the left hand side here shows basically the discrepancy in prices and the closing price per a crypto currency.

Speaker Change: Across the whole sample for the different providers. The colors are hard to see so I'm going to try to walk you through it.

Speaker Change: So we have about 3 million data points right for each coin everyday across the different providers and what you see here. So one of these points is.

Speaker Change: The price the closing price of a coin relative to the median price for that coin on that day across providers for each day and the sample and then the X axis is just when the price was high versus when the price was low so that we can get some variation.

Speaker Change: And what you see is that all of these.

Speaker Change: Riders I mean, if everybody was roughly providing the same data everything would be flat right and you see that that's obviously not the case.

Speaker Change: Clothing prices, it's a unique thing in crypto currencies because.

Speaker Change: There's no clear closing of the day.

Speaker Change: Basically consensus is built as treating the end you'd see time. So midnight UTC is kind of the end of the day. So this should be basically the last trade it priced right before midnight DTC volume weighted across all the exchanges that it's different.

Speaker Change: Farms track essentially when you can see that on some platforms. The price can be up to a factor of 1 million higher than the median price and on other platforms. The price can be a factor of 1 billion lower than the actual median price. So these prices are basically super Super noisy.

Speaker Change: Its not necessarily clear that the median prices the right price to take as a benchmark. So I'm going to talk about that later on but that's just what we wanted to do it just to check basically.

Speaker Change: What what's going on here.

Speaker Change: So we see this for open crisis for close prices were high and the lows and for market caps, it's worse, but its absolute the worst for trading volumes. So.

Speaker Change: So if we're trading volumes what you can see here is kind of the same graph just much bigger dispersion. So in any given day.

Speaker Change: Only 30% Theres only a 30% chance that data that youre going to get from one of these providers on volumes is within plus or minus 5%.

Speaker Change: Around the median so these volumes are extremely extremely noisy.

Speaker Change: We find that this is president and across the whole site spectrum. So it's the same if you look at Bitcoin then if you look at say Deutsche coin or even smaller it is worse for smaller coins, but not necessarily that much worse.

Speaker Change: Alright. So this is not an issue that just affect these small.

Speaker Change: Coins that nobody has heard about this effects bitcoins has effects of theory, that's pretty much every point.

Speaker Change: Now I'd.

Speaker Change: At first this seems nuts.

Speaker Change: Right right, but maybe it's not that crazy because of the nature of crypto currency markets right now obviously, because crypto is traded all over the world. All the time, it's not you don't you shouldn't expect to kind of get the same price at all.

Speaker Change: All the time right. There's natural reasons for why these providers would have different prices. All the time. One reason obviously is that each one of these providers maybe monitoring a different set of exchanges right. So massari, maybe looking at Coinbase finance and cracking, but then sentiment is only looking at coinbase right. So if they.

Speaker Change: Good prices, that's a different set of exchanges, they're naturally going to be discrepancies.

Speaker Change: We found that that's the case so a lot of these aggregated metrics are based on volumes and when you look at kind of the distribution of volumes across exchanges, it's very heavy tailed so.

Speaker Change: If all those kind of a power law with infinite variance and that would basically what it tells you is that if a provider chooses one set of exchanges to monitor and another provider chooses a different change of a set of exchanges to monitor than their aggregated data can be very very different. There's no reason why this should be the same.

Speaker Change: So this is one reason why naturally just because of the wake up the works we would expect these discrepancies.

Speaker Change: But we find that they put the acos are much more pervasive than that so on top of there just being kind of natural discrepancies. We find that these providers tend to be terrorists in a way and the way. They aggregate. These data, but one thing that happens in crypto currencies that doesn't happen in other markets is that identification is not.

Speaker Change: Charlie unique every provider will have their own identification system for different clients in different assets and these ideas are really problematic. So we find for example that on coin market on coin geico.

Speaker Change: Alright.

Speaker Change: Queen gecko, 16% of all the coins on corn gecko have ideas that referred to multiple clients at the same time when do you think youre getting data from bitcoin Bitcoin you might be getting data for some other coin that you don't know.

Speaker Change: On corn on corn paprika, 20% of the sample set.

Speaker Change: That change over time, so if you've tracked the I D. And then you load data for at another time, you might get different data again.

Speaker Change: And then.

Speaker Change: Half a percent of the sample on massari, which is the only institutional level provider we looked at.

Speaker Change: It remains the same after a big four core a token swap. So you can see these massive crashes in prices just when basically a pork where I'd spoken swipe happens and these are not kind of control for it. So these I D issues kind of add a layer of complexity that make the discrepancies words.

Speaker Change: Right now, it's just really does this matter.

Speaker Change: We argue that it does.

Speaker Change: Because when you use these data essentially to compute standard things like returns Volatilities and ranking SAIS rankings. We also look at betas, we'd look at alpha idiosyncratic Volatilities and everything.

Speaker Change: You can't get vastly different metrics. So if you look at the correlation for returns across providers is almost zero for most of these providers. So when you are computing returns based on corn market cap. Your computing returns based on Missouri, and Youre going to get back to be different returns.

Speaker Change: So how do we deal with this problem.

Speaker Change: We developed our own approach basically to handle this problem and it's an approach that's kind of using things that people in the crypto world would understand right and thinking about zero knowledge prove kind of tools, how do we get to the truth without knowing the truth, but what we do is we assume that there are there is a b.

Speaker Change: Cross section of data vendors, so as long as we have a big cross section of data vendors, we shouldn't be able to figure out what is the right data point that we want.

Speaker Change: So what we do is we run basically two separate filtering approaches. The first we're going to use to market metrics to determine which providers are reporting the right data for the same coin at the same time.

Speaker Change: And we're going to use to market metrics, we use first market caps. So we're going to run the market caps for all providers through a first see if you'd be willing to think about it that's relatively course, and that's going to discard a bunch of these providers that are providing data for a different point than say bitcoin.

And then once we obtain the subset of coins that are likely to be subset of providers that are likely to be correct. We ran them to a second through a second filter that is much tighter much more specific to discard additional providers that are also reporting faulty data then once we collect this final set of like correct providers.

Speaker Change: Just take the median here.

Speaker Change: And then use that aggregated data as our reference data.

Speaker Change: So the median if we find worked really well here in the last step compared to say the mean or some other aggregation function, but we also really find that these two steps before are really critical they handle basically kind of idea issues that we otherwise would.

Speaker Change: Not be able to handle.

Speaker Change: When the paper, we have conditions under which this converges and it basically gives you like the right data.

Speaker Change: At the right time, assuming that these providers are actually.

Speaker Change: Are not intentionally trying to basically force fossil.

Speaker Change: Classify the data.

Speaker Change: So what does this do.

Speaker Change: So when we look at basically is we ran a bunch of analysis to understand.

Speaker Change: How this approach ultimately helps and say computing returns Volatilities and all these things.

Speaker Change: So we compute daily returns for the 100 largest points in the market.

Speaker Change: Over those seven years, if you looked at based on data from the different providers and then we run statistical test that's what the stars here mean to see whether the returns that we compute from a provider are very different than say the median price. It where we were taking is kind of that benchmark originally.

Speaker Change: So you can see that even among this large set of points like a theory on balance coin ripple you will see these discrepancies and returns.

Speaker Change: But you don't.

Speaker Change: Alright.

Speaker Change: Got it.

Speaker Change: Our aggregate data.

Speaker Change: And similar things.

Speaker Change: Our other metrics in the market.

Speaker Change: We find that the algorithm.

Speaker Change: That's really important to kind of be able to handle with this idea that we think are kind of the bigger issue at play here.

Speaker Change: So when we look at kind of among the company we're looking at.

Speaker Change: These providers.

Speaker Change: Any coins had I'd be changes that Brian just closed and how do we kind of attached.

Speaker Change: Remove data.

Speaker Change: From a simple we.

Speaker Change: We find that we'd be very well in doing that.

And then we look at what happens when Theres token box okay.

Speaker Change: Are we able to kind of discard data that's gonna be faulty basically based on those.

Speaker Change: Based on our algorithm and we find that that's definitely that's the key.

Speaker Change: This approach really offers.

Speaker Change: Methodology to once you observe kind of a lot of different data to be able to tell whats the right. They are not.

Speaker Change: Ultimately, what obviously, what we're going to what we do with this is something that we were pushing to kind of looked at that we've done it wasn't really thinking of doing this necessarily beforehand, but then came Harvey Kent.

Speaker Change: Look into it.

Speaker Change: <unk> type development.

Speaker Change: Dean potentially to guide to kind of make the usage of data.

Speaker Change: Frost differently.

Speaker Change: <unk>.

So what we did here is.

Speaker Change: Essentially we just just measure how often does it up from one of these vendors fall kind of in this gray area, where we're discarding data. They report and if it were this cutting data a lot then we're going to say that data.

Speaker Change: Provider has low grade low rate and then if we just start data relatively frequently we say that provider is hybrid.

Speaker Change: So that's kind of a standard approach to it.

Speaker Change: And does this what you see here very small added there.

Speaker Change: Over the whole standpoint, we're looking at corn geckos scores around to see around 30% of the data is discarded.

I'm, sorry, with countless more surprising.

Speaker Change: Very expensive eight us Ted I've got around to be plus or are we just start around 50% of the data.

Speaker Change: Point market cap point pre guidance sentiment performed very well.

Speaker Change: What we also found is that the quality of the data is not consistent in a way.

Speaker Change: What this chart here shows it's kind of the time series of monthly great.

Speaker Change: So if you look at kind of every month, how much data are we just got.

Speaker Change: You can see that this kind of the quality is not consistent or acquaintance coin market cap and sentiment. It is much more consistent.

Speaker Change: Which is surprising because a lot of people have questions about clean market cap being owned by buying <unk>.

Speaker Change: Sentiment is not surprising because sentiment discloses that they copy data from point market caps. So we would expect them to kind of performs equally.

Speaker Change: But for example coin gecko fared really really poorly early or if youre looking at data from 2000, 22019, <unk> was probably not a good place to look that date up if this it doesn't matter much better now and then massari did much better the quality of the data that's older on Massawa is much higher than the quality of the data that's there.

Speaker Change: Now it suggests that there are potentially revisions, we've noticed that as well in our analysis that some of these providers correct all data when they recognize that it's Paul.

Speaker Change: <unk>.

Speaker Change: So I.

Speaker Change: I had planned for 20 minutes and I did need almost 20 minutes.

Speaker Change: Good so.

Speaker Change: What do we pay so I guess, yeah I forgot about so what does this all mean right in yen.

Speaker Change: So what our results have lots of implications right. So the first thing is that because we don't really know what the right value of the data that we're looking at then what our results suggest is that you need kind of a large amount of vendors to be able to pay that down and that is of course pros and cons right. If you are.

Speaker Change: Consumer obeida that means that you're going to have to spend a lot of money on these data.

Axis right. So the average price for one of these data vendors that we established for those that offer a monthly subscription packages around $700 per month.

Speaker Change: My salary for example charges 10000 and $15000 a year and then there are other providers like Tycho that's around there as well so that's problematic right.

Speaker Change: Now we think that.

Speaker Change: Our quality grading can potentially help so if you want to decide just to use one data vendor you can kind of use these rates to get that.

Speaker Change: In terms of applications right for practitioners that are using crypto data, it's really the.

The focus should be really on cleaning the data and making sure that you're getting the best quality data for academics and this raises lots of questions right. Oh, you have a slide where we look at how many times academic papers mentioned these data vendors. There are a lot of papers that use these data independently without controls so it kind of raises questions about replication.

Speaker Change: And then possibly for regulators and industry groups really there was a question about should we do something to kind of supervised the market for crypto data.

At the minimum we think that our unified approach for identification like ice and our CUSIP would be very big in crypto because that would already resolved a lot of the big discrepancies that we see the one plus 1 million or minus 10 1 billion just wouldn't happen if we had unified Ids.

Speaker Change: Possibly also having guidelines on how to aggregate data. So if you're saying this is to the closing price of bitcoin today.

We should be able to say like okay. This comes from this exchange. This exchange this exchange can be clear.

Speaker Change: And then finally, there, possibly consumer protection questions as well right. Because for example sentiment charges lots of money to recycle data from corn market cap.

Speaker Change: Sorry, the same they're recycled data from clients from crypto compare so there are all these kind of different data vendors selling the same data and not charging basically for along the way and it's not quite clear that these data are really as good as we think they are.

Speaker Change: Alright, so overall, we surveyed a large amount of data vendors that exists today in the market and document pervasive quality issues. We proposed a solution, but the solution is costly because it requires basically subscriptions to many data vendors and.

Speaker Change: Then we also developed by quite a quality grading scheme that can help in kind of decision making here in this space.

Speaker Change: We think that there's lots of implications here lots of open questions Phil to be addressed so I look I look forward to the Q&A.

Speaker Change: Thank you.

Speaker Change: Thank you.

Speaker Change: [noise] question in the background.

Speaker Change: Hum.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change:

Speaker Change: Yeah.

Speaker Change: Thanks for the presentation.

Speaker Change: Go deeper into the the rationale and why some of the other discrepancy right is it more on the just lack of infrastructure classroom at the things you kind of mentioned or do you suspect any foul play in a market manipulation in this space.

Speaker Change: It's hard to tell right, we can't really tell because we don't know what the true. The truth is right. So it's really hard to tell them. We we find that a lot I mean, a lot of these are just really fat finger mistakes like somebody put in the wrong price and that's just what's causing this which is crazy to me to think Ah.

Speaker Change: We do see that some of these providers update the data exposed so theres kind of revisions that would point to this not really being intentional.

Speaker Change: One thing that makes it really hard at that because there are no guidelines that providers are not transparent about how they are aggregating their data. So for example, this is where possible market manipulation could come in theres obvious wash trading issues. So a lot of them you should try to control for wash trading right you should account for wash trading in one way or the other but a lot of it.

Speaker Change: Providers don't to disclose whether they are or not so.

Speaker Change: Don't really know exactly what's happening in the background and that makes it harder to that's essentially what what there what's going on.

Speaker Change: Okay.

Speaker Change: That's right.

Speaker Change: Yes.

Speaker Change: Do you think this I can't believe how I'm stunned by how.

Poorly the data is being reported.

Speaker Change: Do you think that this will improve in the years to come I'm wondering if these were understaffed companies and excel spreadsheets little bit messy, we know how the space is do we think.

Speaker Change: It might improve.

Speaker Change: I mean I hope.

Speaker Change: Yeah, but I mean, I guess, one counterpoint to that why it's hard for me to believe that that's just the case because massari probably is one of the most well capitalized companies in the space right and they're not necessarily doing that much better right right. If that were the case I would think that those companies that have raised the most money that.

Speaker Change: I really much more advanced with constantly be high quality and that's just not what we observed.

Speaker Change: Yeah.

Speaker Change: So then what is the price of Bitcoin [laughter].

Speaker Change: Yeah, I mean that is I guess a question for right I guess, that's kind of what we have to get down to right. There's gotta be guidelines ideally if so like what should the spice being I guess it comes back to the question is there's no global regulator right. So everybody is going to have a different price than it naturally.

Speaker Change: Yeah.

Julien: Hey, Julien.

Julien: Yes.

Julien: Yeah.

Julien: Thank you. So I'm curious I know this paper was recently published but have you received any feedback from any of these aggregators and I have a call with clinical BRCA next week.

Speaker Change: And we talked to Tyco before they wanted to be included the Tyco doesn't do this aggregation, which I guess it goes back to the point, maybe they know how hard it is to do and they just don't do it yeah.

Julien: Thank you.

Speaker Change: Hey.

Speaker Change: I'm curious two questions. One is the aggregators. So I think Michael's presentation, you had 15000 coin issuers more or less.

Speaker Change: Are all of those being tracks from these Aggregators and then second question is with the stable genius being making its way through both the Senate and house right now and in the question the policy question.

Speaker Change: Is that addressed in those pieces of legislation this kind of the let's just call. It anomalies that are present in these aggregators.

Speaker Change: So.

Speaker Change: So the first question some providers have 15000 points on their platform quite market cap courtyard, Dallas coin gecko does as well, but not all of them do and partially that's one of the reasons. Why we didn't include some of the other providers is just because their universal coins is much much smaller.

Speaker Change:

Speaker Change: In terms of the rate the legislature, that's going through the Congress right now I'm not quite sure I don't think that this is a problem necessarily that people are.

Speaker Change: Very aware off.

Speaker Change: So I would be surprised but I don't know.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Thanks, I'm curious are you able to pull a similar set of data from a single exchange to like compare how it. If you just used quaint base and does it track the median or is it.

Speaker Change: Do those discrepancies in the need for aggregating become clear yeah, I have not done that that's a good suggestion.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Is that a researcher or can they experience if I knew the get all the data that you did in the paper and hear the filtering process, how does that compare to say the coin market cap is it far off or no. So quaint that's kind of what refinance I think when market cap relative does relatively well.

Speaker Change: It's pretty much in line with what we find.

Speaker Change: Yeah. So that's good news I guess for that go there yeah.

Speaker Change: But I think when market cap realizes that because they've raised their prices too right. So it's actually pretty expensive to get data from them, especially going long histories, it's expensive.

Speaker Change: Okay.

Speaker Change: No more questions for this demo.

Speaker Change: Yes.

Speaker Change: It's Alex.

Speaker Change: I was wondering I mean it.

Speaker Change: And I'm, just really blown away by this this is like data as the fundamental that we need to be corrected to make informed decisions inclusion.

Speaker Change: You mentioned that this might have implications on other research because it may not be replicable have you found.

Speaker Change: Sound any research or looked into any research that is impacted by the state of being.

Speaker Change: So unreliable.

Speaker Change: Reliable.

Speaker Change: Yes, we looked at that.

Speaker Change: The problem with those kind of issues is that you again, just don't know what the truth. So like even if something was published it could be true, but could not be true. That's always the case for no matter. What research is done, but we do find and this is not we're not the only ones theres been other papers said argue the same thing is that.

Speaker Change: If you look at different data sources in crypto in particular, you could possibly get very different empirical findings.

Speaker Change: So one question is so suddenly implications for oracle's so he.

Speaker Change: Using an oracle with coin market cap versus using <unk>. So this is something that we've been trying to get to and we don't really know how to assess but it's a big question for sure yeah.

Speaker Change: Okay, no more questions I'm thinking this novel query our presentation.

Speaker Change: [noise] and I'll move on to the last page.

Speaker Change: Alex the Coker said there.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Hi, so on our internal I'm visiting professor with caused in New Jersey, and my cost or a stop Zhao County, She is a senior adviser with the Philly fed but of course it means I have to give the caveat of nothing we say here it can be interpreted to nobody those of use of the fed or the.

Speaker Change: So it's just I'm just only the authors.

Speaker Change: So start off you know crypto currencies have become just massively naturally widespread within the past.

Speaker Change: Seven years, right and they're reporting to completely change everything I'd make things faster.

Speaker Change: Making more transparent I produce frictions et cetera, and of course with the worst Ive crypto currencies have been a number of global concerns some of them are privacy security and we focus on is this growing gap between the behavior of different players in the cryptocurrency markets, notably these very large crypto holders.

Speaker Change: We called whales in the smaller ones, which are preferred with me knows right.

Speaker Change: So we also can note that crypto currencies have been characterized by this ridiculous amount of volatility.

Speaker Change: Lack of oversight and of course, you can see that combining these with the effects of some of these large holders we can see some interesting stuff.

Speaker Change: So first things first right in crypto currencies.

Speaker Change: For the most part to the anonymous right, they're not anonymous so it's the case that we can see that what wallets are holding these very large amounts we don't know who they belong to necessarily sometimes we do sometimes we can kind of track from beside these back different companies, but for the most part we can just see that some wallet holds.

Speaker Change: Millions of dollars' worth of one coin or even possibly more than that.

Speaker Change: Right now what's really interesting about this is that because you can see these sooner anonymous cryptocurrency wallet, we can actually track with see what Theyre doing right. So we can see when these wells are liquidating their currency and we want to see is that they're actually you know moving your strategic way, which surprise surprise they are.

Speaker Change: And you know where they can capture the gains of this cryptocurrency markets, perhaps at the expense of some of the smaller holders.

Speaker Change: So we look at these trading patterns for these sophisticated investors, we're seeing more retail one.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: The public comment period, which is the technological Kurt.

Speaker Change: In terms of market cap right now these multiplayer and holders. We are finding is that they are at least two of them.

Speaker Change: Their holdings prior to the price increase the smaller theory holders, we tell investors. These minimums, they're basically wound down now.

Speaker Change: In addition to that.

Speaker Change: See that not only our theorem returns moving and Brexit benefits whales.

Speaker Change: It's actually volatility caused by smallest holders, which is perhaps a bit better.

Speaker Change: So of course, you know we can look at the literature Theres a whole lot about cryptocurrency. So far basically think there have been they've been a very popular topic in the last five years or so so obviously, there's a lot of things talking about the volatility I was talking about the relations of these coins most of these papers or many of them when they investigate somebody smaller coins. They find they are very very tight the bitcoin.

Speaker Change: And of course, there's also a number of papers that looked at some of the manipulative practices occurring in the cryptocurrency market.

Speaker Change: And of course now when it comes to these schemes, we can actually find well and perhaps unlike you know in the past we found explicit you know.

Speaker Change: Some of these authors, particularly explicit schemes that for the smaller coins they'll say hey look the.

Speaker Change: People will get together, whether it's on telegram or whether it's our discord and they'll say hey, we're going to get together when the pump the prices going up and then we're gonna you know all sell out yes.

Speaker Change: What's even more interesting about this.

Speaker Change: Even though they're telling investors don't want to do that explicitly people will still join in.

Speaker Change: What's even worse is that is the smaller investors who ends up being negative returns from these schemes. Despite that they are participating in them willingly.

Speaker Change: Perhaps called out Karma, but it does seem like you loaded investors are doing at least something like the smaller vessels now aren't.

Speaker Change: Now of course in theory, it was not some small coin that's constantly getting pumped up and then.

Speaker Change: Right, but we don't want to see that these large investors are.

Speaker Change: Perhaps capturing these gains in a similar manner.

Speaker Change: Right.

Speaker Change: So the relationship that we end up testing.

Speaker Change: Whether these price movements the changes.

Speaker Change: Just on the overall market of course.

Speaker Change: Wants to less paper I guess, when he was quite metrics hard data. So hopefully beef prices are.

But we want to see if wells are increasing their holdings before these prices.

Speaker Change: <unk> holders are basically doing the opposite.

Speaker Change: So here's the number of our peers models right. We have our models for a turn from the following day, we kind of break up with each of our it'll holdings.

Speaker Change: Patterns into these different market segments right because once again, we can see how much if you remember in these different wallet as you can see how many wallets are they're holding over.

Speaker Change: $1 million or between 100000.

Speaker Change: 10000, 100000 labels and <unk>.

Speaker Change: Actually we have a different model for our 30 day.

Speaker Change: <unk>.

Speaker Change: 30 day volatility of returns right because they want to see if you know the volatility has been caused by these larger investors versus the smaller ones.

Speaker Change: So we use our data from quite metrics now Quinn metrics, what it does is it aggregates based.

Speaker Change: Basic crypto currency data, mostly on chain metrics right. So what are the biggest holders who are the biggest holders how much did they hold are they changing their holding from period to period on day to day and we take this five year period from 2018 to 2023.

Speaker Change: We basically use our data frequency in terms of wildfires, because we want to see who the largest holders are like I said, we can see that right, which is really great about this we can actually see how they are moving now.

Speaker Change: Now.

Speaker Change: Of course, we can see just how would you what's moved in this timeframe right helium prices peaked at about 4000.

Speaker Change: Currently its maybe it under 2000, maybe even more I haven't checked my phone, which is I've been up here on M&A, So who can say.

Speaker Change: Theory immuno market cap, though has reached 240 billion.

Speaker Change: March 2025.

Speaker Change: Now once again, what are you using our daily percentage change and a theorem holdings as our main independent variable of interest and we're using these percentage change for each of these market segments large holders second largest next and so on and so forth now we expect a large sophisticated investors to adjust their theory holdings. So that they are kathryn the good returns.

Speaker Change: Right, which means that when he was our daily returns from the prior from the following day.

Speaker Change: Based on the previous day and once again as we noted there's no market close rates, we just use midnight from one day to the other.

Speaker Change: We investigate whether or not.

Speaker Change: These large tours are making their movements in anticipation of these price changes.

So we basically develop these different market segments right.

Speaker Change: Say, if you're holding over $1 million USD area, but.

Speaker Change: Youre one of the largest holders of it and there are still a good number of these holders who are holding over $1 million in a single wallet right.

Speaker Change: Now of course, we also have between 100000 in Logan. These are also fairly large holders between 10000 100000.

Speaker Change: And holding weapon penthouse now note that we've taken investors out of our sample who are holding with a $10 because.

Speaker Change: Some of these investors are just you know miners or different accounts that are doing things that are perhaps not indicative of overall trading activity and but the most part actually the large number of our market by over 95% of a theorem holders don't even have $1000.

Speaker Change:

Speaker Change: And then Walter and of course, our or sorry, 95% are holding under a thousand miles in their wallet and 70% of holding on to.

Speaker Change: It makes sense that we wanted to move some of the smaller players because these players arent, losing or gaining very much to begin with.

Speaker Change: Hi.

Speaker Change: Of course, then given our market segments as you might expect.

Speaker Change: It's going to be these two smaller segments that are notably more like holding less than $10000 in the theory of them and of course holding between 10000 and 100000. These larger there's still a significant number of things.

Speaker Change: Single wallets that are holding over $1 million, leaving over 100000, but not as much as these older homes.

Speaker Change: And of course, we can see kind of how these daily while at Pfizer tip change per year, but obviously when we're tracking to see if these walls are changing we wanted to see if there's a theory of machines right now that the dollar value of the holdings are changing because obviously the dollar value would be changing the prices are going up. So we're seeing that there would be walter actually gaining more helium at these different timeframes.

Speaker Change: Okay.

Speaker Change: And this is of course when things do you think it's gonna put interest right because if we look at it the whole room for more than a million art, notably different from almost any other holders right theyre going up when people are going down they're going down where everybody else is going up by their trading activities are substantially different than any of these other markets.

Speaker Change: Perhaps because they are better trading, perhaps because they have more knowledge and more sophisticated.

Speaker Change: We can also see here.

Speaker Change: If we take a look and see like this.

Speaker Change: These have been kind of percent changes in their daily holdings right the horrors of over $1 million.

Speaker Change: They're not changing their holdings as much as these you know smaller holders all right, it's less than $10000. A theory them. They are the ones that are kind of moving around the most.

Speaker Change: Okay. So we basically use some control variables right because if we're saying that we want to see if these holders are changing the amount of a few of them in their wallets, which are probably control for how much of pbms trading right. So to do this as a tool for the current supply of crypto currency.

Speaker Change: With this ratio right. This one day of active supply with your total supply available.

Speaker Change: The change in this ratio and that's going to be one of our main control factors in our models.

Speaker Change: And of course the results perhaps are exactly what you would expect but our largest holders are making out at the expense of the smallest ones. In fact, we see this very nice relationship here, we see that these large holders are increasing the most and then the next largest next most and then we start to see these negative.

Speaker Change: Movements for the smaller holders.

Speaker Change: When it comes to predicting the price of the day ahead stakeholders getting ahead of it.

Speaker Change: One of the homes or not.

Speaker Change: But basically there's clear positive relationship as we'd expect.

Speaker Change: The theory and returns moving in the direction of benefits whales, but it's temporarily reduces the returns will be small retail investors.

Speaker Change: Market's moved favorably with respect to wealth.

Speaker Change: Now one thing we should note is that there is this you know.

Speaker Change: One point right at September 15th 22, where theory I'm kind of changes English from a proof of work to proof of mistakes system now we would say proof of work is.

Speaker Change: Perhaps less decentralized why because Cooper work requires all the specialized hardware like somebody like energy intensive and mining systems that are notably harder for a single investor to do right as opposed to group stake right, which we would characterize as more decentralized a lot of the more because of patients. It doesn't require the same hardware.

Speaker Change: So of course robust robustness, we should end up checking to see if this relationship. If these wells are benefiting across the two periods. The exact same way right and the pre transition period, whereas the proof of work and less decentralized compare to this post addition period, where we'd say put should perhaps morning.

Speaker Change: Centralized.

Speaker Change: Well in the proof of work period from this before September 15th 2022 periods, where we say hey, we need this all the specialized mining equipment, we see results that pretty much resemble exactly what we saw before.

Speaker Change: Large holders are doing the best more of a whole lot of being in the west.

Speaker Change: Now of course when it gets interesting is if you look at the Cooper State period, where we say what do we say things should actually be more decentralized now, but it doesn't actually appear that these large holders aren't doing quite as well in fact, they're not.

Speaker Change: Changing significantly ahead of pricing is unfortunately, it is still the case that the small holders.

Speaker Change: Are doing poorly, but it's not necessarily a wells benefiting as much when the system gets more decentralized. These large holders are not making the same kinds of things.

Speaker Change: So the largest holders have less effect on a theory and returns following this transition to prove a mistake.

Speaker Change: And for the small wallet segments, we still see this negative relationships across these two periods.

Speaker Change: Alright. So once again, we also said we want to check out the volatility of returns as well by comparison volatility in each of these you know wildfires basically is the volatility in these wallet sizes driving the volatility in returns.

Speaker Change: Now Europe, we once again he was on a kind of longer timeframe, but we have a 30 day.

Speaker Change: And elevation of our returns here.

Speaker Change: And our independent variables are the 30 day rolling Volatilities each of these segments you need to bring to these wallets and we also once again control volatility might come from a ceiling on supply changes and we have a couple of different how control variables here. The 30 day active supply.

Speaker Change: Ratio versus the 30 days active supply in general.

Speaker Change: Right.

Speaker Change: I Wonder of course interesting here is that it does appear that for all but pretty much the largest tam holders.

Speaker Change: We'll get back to that one for a second.

Speaker Change: We are seeing.

Speaker Change: Significant drivers in volatility 88, when small holders are changing their holdings.

Speaker Change: Returns volatility has gone up as well.

Speaker Change: Interestingly, we see the opposite effect for the largest holder type of the whales right, if you're holding over $1 billion of material Youre actually not moving volatility as much in fact, they're moving in the opposite direction of it.

Speaker Change: And this is regardless of what we control.

Speaker Change: So once again, we're seeing this case that it's not the largest holder shopping volatility. Despite the fact that it is the largest holders capture returns.

Speaker Change: Right now this is once again, a pretty interesting phenomenon, because you might expect that well yeah largest holders would be Katherine turns out they were the one five and these movements, but that's not the case right. There just benefiting from the movement of these minnows right. If the movement, obviously, we'll tell traders.

Speaker Change: And pretty much any model taken it except for the largest.

Speaker Change: Moving to overall volatility. Despite the fact these returns are being captured by the largest holders.

Speaker Change: We also closed some robustness testing.

Speaker Change: But one thing we see is the relationship will go in reverse if that's the case that we could predict holdings based on returns instead of predicting a returns based on holdings and of course, we don't really see any significance for any of our market segments here.

Speaker Change: Much across each of these.

Speaker Change: And that's what we're looking at the smallest or the largest.

Speaker Change: You know, we don't get any significant relationship.

Speaker Change: That's.

Speaker Change: At the very least it.

Speaker Change: Some were robust horizontals.

Speaker Change: We also take a look and see if we can include prior returns to see if they're influencing the day had returns as well.

Speaker Change: We don't really see any significance here.

Speaker Change: Once again it appears that the things we saw before right well, it's doing the best smaller holders doing you know.

Speaker Change: The worst.

Speaker Change: Much hold again without actually which is interesting because we might expect actually returned from the from the next day to be influenced by the acquired but they're not after accounting for the holdings in these other wallet.

Speaker Change: So.

Speaker Change: What are overall conclusions well first off there is probably not the same level of market manipulation and the theory and platform that we're seeing in these smaller cryptocurrencies buy but it is the case that wells are increasingly to returns prior to increase in prices.

Speaker Change: And you know unlike me script the world smaller investors are reducing their homelands before these.

Speaker Change: The price of their own building up. Additionally, if the small investors who are responsible for driving volatility, but we all seem to be the ones where profit from it. So the volatility in the markets driven by the movement of not be as you know large holders despite them benefiting from the returns at these things.

Speaker Change: Yeah.

Speaker Change: Hopefully we're on time.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Yes.

Speaker Change: Any questions for Alan.

Speaker Change: Sorry, Alex.

Speaker Change: Oh my goodness in Atlanta.

Speaker Change: Okay. So.

Speaker Change: So there was a graph that you had up where in after proof of stake it looked like the largest negative shift was affecting the second smallest group and I just wondered if you had any insights on that.

Speaker Change: As as to why smallholders Lewisville.

Speaker Change: Yeah.

Speaker Change: So I just thought it was unusual that like there was a much larger negative effect in the like not the under 10000, but the just just over $10000. It just seems disproportionate to kind of the other.

Speaker Change: The other.

Speaker Change: The other graphs that we saw.

Speaker Change: I guess I don't have any incentives that have been thinking.

Speaker Change: [laughter].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Okay.

Speaker Change: So I'm kind of viewed all of this but I mean.

Speaker Change: These markets are supposed to be really efficient and information is fairly perfect why is anybody making any money.

Speaker Change: Are they like RV ing across exchanges is like what's the what's.

Speaker Change: What's the game and they don't know the price is going to rise the next day.

Speaker Change: So and the small investors.

Speaker Change: What is the source of.

Speaker Change: What what is the source of the return of uncertainties seems fairly persistent.

Speaker Change: What do they know that the small investors call.

Speaker Change: Or to say it could be they have more knowledge of the crypto space in general right.

Speaker Change: The theory on platform has.

Speaker Change: I would say more usage and something that I say that bitcoin blockchain right.

Speaker Change: Other cryptocurrencies things actually have been priced in the theory them, even if they're mostly other digital assets themselves.

Speaker Change: So it's.

Speaker Change: We would suspect that some of these larger holders are perhaps more involved in some of these processes versus the smaller holders, which are probably not but you're right. It is a tough question to answer.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: Hello, It's Stefano from San Francisco State was wondering maybe I misinterpreted when looking at Walnut Holdings, how does etfs play into that.

Speaker Change: Okay.

Speaker Change: So we're mostly looking at the individual wallets now depending on how these etfs are being traded.

Speaker Change: Perhaps if they're held by some large holders.

Speaker Change: Whoever's holding these etfs, maybe we'll have a construct sit right because these wells could be these funds.

Speaker Change: And of course, once again, you're right that might perhaps make the results a bit trickier to handle just because a lot of you know holders.

Speaker Change: It actually holding individual wallets ride the holding onto the exchanges are holding etfs et cetera.

Speaker Change: And we would expect that actually weaken the results of these actually effects might be much stronger.

Speaker Change: If we weren't able to distinguish between those but.

Speaker Change: That data has been harder to get.

Speaker Change: Thank you.

Speaker Change: Yeah.

Speaker Change: And just a comment.

Speaker Change: Just two questions. One if I were to look in like equities, what I see similar behavior. Among large investors are and then two could it just be that they are providing risk barrick assays demand equal supply at the minutes are selling these guys are buying on average if they are bearing risk, maybe they're getting compensation or maybe it's just the trend of crypto in this case the theorem had a run during this time.

Speaker Change: <unk> periods, and if you're holding and you're more likely to be making money.

Speaker Change: Well I guess I'll address a couple of those things Walter.

Speaker Change: <unk> was able to actually go down at this time, Sir So we did see some of them seem to be a negative mix hurts. So it wasn't just all up because otherwise exactly right. If your whole if you're a larger hole holding them for longer and it probably is going to keep holding it and then of course, you've heard will be notably positive. So we just try to choose a period of which we did see some.

Speaker Change: Now I guess I'd say the biggest difference between this.

Speaker Change: And equity markets are just a number of smaller holders right.

Speaker Change: And equity markets, we don't have such a large number of being small holders, but we havent much more large players.

Speaker Change: And I'd say, a larger proportion of market players as well so.

Speaker Change: Yeah.

Speaker Change: I had a kind of a follow up question and also I think one thing that's important for what Youre doing is thinking about kind of what's the baseline what would I expect Gregg because.

Speaker Change: I mean I disagree that this market is as efficient as we all think I think this was actually relatively inefficient and therefore, if you are seeing large buys that's going on with the price right. So I would expect that in a market that's relatively inefficient with slow information diffusion of large buy would move to price down the line not immediately right. So it would be great to kind of think about this.

Speaker Change: Structurally right, even like either in a cow modelers and some sort of causality kind of framework, where you can kind of try to flesh out really whether they are actually buying ahead of price moving up or they're just kind of causing the price of the box right.

Speaker Change: That would be something that I would look into.

Speaker Change: Hmm.

Speaker Change: Okay.

Speaker Change: I think those are good points and I definitely agree this markets are not added.

Speaker Change: Patient as well as had been reported at least not yet.

Speaker Change: Is it harder.

Howard is it attracting taking colder the whales.

Speaker Change: I mean anyone can.

Speaker Change: As it is surprisingly easy right, they're all like him yet what are called whale watching sites online.

Speaker Change: Basically we take a look at these large wallets and they'll say look this is what this wild with it today and this is what this while it did.

Speaker Change: There's some other de Rendez actual real time things on Twitter that followed them now we don't always know who all of these wallets, sometimes with you when we can see if there's some large exchange, but yeah, no it's actually very easy to track them.

Speaker Change: No.

Speaker Change: Yeah.

Speaker Change: Elizabeth.

Speaker Change: So my first question is how worried are you about your data after the start of this presentation.

Speaker Change: And then.

Speaker Change: I was just wondering you know since you're looking at like what look like over a period of time. If there were any anomalies I couldn't help but think of the whole gamestop situation. When you started talking about that this sport channels at the small investors. So if there happens to be any like anomalies for like maybe the small guys did win.

Speaker Change: At least briefly.

Speaker Change:

Speaker Change: Well I guess it didn't look as though we noticed any anomalies of that we did notice that in on some crises. We also kind of looked at the class of Silicon Valley Bank bite MTX.

Speaker Change: It did appear actually that these results were exaggerated.

Speaker Change: In light of the FTF MTX collapsed not in some of the other ones, though and of course with regards to the data.

Speaker Change: Well the price data I guess, we get from Queen metrics, perhaps you can.

Speaker Change: Okay I understand yeah, and then of course, the rest of the data we get from the chain itself. So that's I.

Speaker Change: I mean, that's I don't think that's such that could all because it's public.

Speaker Change: Yeah.

Speaker Change: Yeah.

Speaker Change: Alright, Thank you Allen.

Speaker Change: Great job appreciate it.

Speaker Change: Thank you everyone on the call.

Speaker Change: We have a little extra time left that's great.

Julia: I'll give the floor to Julia.

Speaker Change: One more round of applause for our last panel.

Julia: Yeah.

Julia: So once again, thank you all for joining US we start tomorrow morning, same place same time, and we will really focus on regulation and Fintech innovation Tomorrow, and we are very much looking forward to your participation. Additionally, please hold onto your name tag because it will expedite the security process Tomorrow morning.

Speaker Change: Yeah, Eric away and now please join us for reception outside these stores. Thank you.

Speaker Change: And also don't forget returning the Chargers are thank you.

Speaker Change: I really think retrofit.

Speaker Change: No problem.

Speaker Change: Yeah.

Speaker Change: Thank you.

Speaker Change: [noise].