On a recent episode of the Real Vision podcast, Chainlink co-founder Sergey Nazarov joined host Ash Bennington for a conversation about how tokenized real-world assets that move cross-chain via Chainlink’s Cross-Chain Interoperability Protocol (CCIP) and update via Proof of Reserve (PoR) are the link between traditional finance (TradFi) and onchain decentralized finance (DeFi).
Nazarov recalled the excitement around CCIP at SmartCon 2023, where he and Swift’s Tokenized Assets Product Lead, Thomas Dugauquier, held a panel discussion with representatives from top financial institutions that participated in Swift’s proof of concept about how banks are using CCIP to unlock the future of digital assets onchain.
Describing Swift’s legacy infrastructure as the “English of the financial world,” Nazarov said CCIP’s blockchain abstraction layer allows more than 11,000 banks to continue using Swift’s standard onchain, accelerating the formation of what he envisions will be “the world’s largest global liquidity layer” for creating, buying, and selling RWAs.
Essentially, CCIP allows a bank to create RWAs on their own private bank chain and sell them to customers on any other private bank chain or public blockchain.
“By lowering this integration burden by all the customers that you would want to buy your RWA, we can rapidly increase the size of the market that can access your RWA, which is the fundamental thing that RWA creators want,” he explained.
No matter which chain they reside on, PoR consistently updates RWAs to accurately reflect real-world conditions. “It will remain what is known as the golden record,” Nazarov said.
In his view, consumer demand will drive banks to create an expanding array of RWAs that ultimately bridge the gap between TradFi and DeFi.
“My view is that TradFi is DeFi’s biggest customer, eventually.” he said. “So this DeFi versus TradFi thing doesn’t really make sense, because they’re all just trying to do transactions. They’re all actually very similar transactions and all the transactions are motivated by basic economic laws of yield and supply and demand.”
Because DeFi’s whole premise is to make counterparties cryptographically reliable, Nazarov believes the world’s shift toward a single global internet of contracts as a more secure and reliable financial system worth hundreds of trillions of dollars is inevitable. He said the demand for RWAs leads to demand for yield on RWAs, at which point RWAs will emerge as “the financial products that we all use.”
In this system, essentially anyone would have access to tokenized institutional-grade financial products, such as tokenized private equity and tokenized carbon credits. “We won’t have to be a bank; we won’t have to be a multi-hundred-million-dollar hedge fund, because all of those financial products will be onchain,” Nazarov said.
“I think what we’re talking about here is something that’s truly profound,” Bennington agreed. “This is just a huge quantum shift in the way that the technology gets done.”
Watch Sergey Nazarov’s full conversation with Ash Bennington on the Real Vision podcast.