Nick Shalek: The future of finance blends decentralized and permissioned systems, why regulatory clarity is crucial for digital asset adoption, and how tokenization will personalize financial interactions

Key takeaways

• The future of financial systems will integrate both decentralized and permissioned elements.
• Investing in projects that merge traditional finance with blockchain is seen as promising.
• Tokenization aims to make assets interpretable for machines, enabling smarter software.
• The financial system will become more personalized and intelligent, differing greatly from today’s model.
• Younger companies are more likely to adopt new technologies due to their innovative culture.
• Regulatory clarity is crucial for the widespread adoption of digital assets.
• Incumbent financial institutions have opportunities to innovate by adopting new technologies.
• Creating a network of users and services is a major competitive advantage in fintech.
• Digital payment platforms like Zelle and Venmo have significantly increased transaction volumes.
• Goldman Sachs actively trades a wide range of crypto products with regulatory approval.
• Privacy is essential for scaling on-chain finance.
• The current incentive structures in crypto mainly benefit infrastructure providers, not users.
• Large-scale institutions need reliable infrastructure for mission-critical operations.
• The Kantor network aims to replicate today’s financial system on blockchain technology.
• The future of digital assets will coexist with traditional financial systems.

Guest intro

Nick Shalek is a General Partner at Ribbit Capital, a fintech-focused venture firm with a portfolio including Robinhood, Coinbase, and Revolut. He previously served as a Senior Analyst at Yale’s Investment Office under David Swensen, where he contributed to over $800 million in investment commitments across multiple asset classes. Shalek specializes in early-stage fintech and blockchain investments, with a check size range of $2M to $15M across seed through Series B rounds.

The blended future of financial systems

• “The future of financial systems will not be purely decentralized or permissioned, but rather a blend of both.” – Nick Shalek
• Consortiums or permission chains have become critical infrastructure.
• Investing in projects like Tempo or Canton is exciting due to their blend of traditional finance and blockchain.
• “I’m a believer that it’s not permissionless or permissioned; these things are symbiotic.” – Nick Shalek
• Understanding the ongoing debate about blockchain systems is crucial for financial infrastructure.
• This perspective challenges the binary view of decentralization.
• The blended approach reflects a nuanced understanding of financial systems.
• “As an investor, I think it’s very interesting to invest in things like Tempo or Canton.” – Nick Shalek

Tokenization and intelligent software

• Tokenization is about making the world interpretable for machines.
• “What tokenization is really about is making the world legible for machines.” – Nick Shalek
• Intelligent software will interact with the world’s assets through tokenization.
• The future financial system will be more personalized and intelligent.
• “We’ll end up with a financial system that looks something like what we have today but is far more personalized.” – Nick Shalek
• Understanding tokenization is key to future financial systems.
• The predicted changes emphasize the transformative potential of technology.
• The financial system will be unrecognizable compared to today’s model.

Younger companies and technology adoption

• Younger companies are inclined to adopt new technologies due to their innovative culture.
• “These companies have innovation in their DNA; they’re natural disruptors.” – Nick Shalek
• Newer tech companies differ from traditional institutions in culture and operations.
• Younger financial companies see expansion potential by operating globally.
• “They’re interested in the expansion potential that comes with being able to operate on a global state machine.” – Nick Shalek
• Understanding market dynamics and operational strategies is crucial.
• Newer companies serve customers in innovative ways outside their geographies.
• This insight highlights the strategic motivations of modern financial companies.

Regulatory clarity and digital asset adoption

• Regulatory clarity is essential for broad-based adoption of digital assets.
• “There was an absence of regulatory clarity, something close and dear to financial institutions.” – Nick Shalek
• Regulatory frameworks impact the adoption of digital assets.
• Adoption of digital assets will accelerate as regulatory clarity improves.
• “I think now you can really start to see where adoption will truly accelerate.” – Nick Shalek
• Understanding regulatory developments is key to the digital asset market.
• Regulatory improvements lead to increased investment and adoption.
• This insight highlights the critical role of regulatory clarity in industry growth.

Opportunities for incumbent financial institutions

• Incumbent financial institutions have opportunities to adopt new technologies.
• “I do think that incumbents have an opportunity if they adopt the technology.” – Nick Shalek
• Creating a network of users and services is a significant competitive advantage.
• “Creating a network is a huge competitive advantage.” – Nick Shalek
• Understanding the current landscape of fintech is crucial.
• The potential for established companies to innovate is highlighted.
• Network effects are strategically important in fintech.
• This insight provides a framework for understanding competitive dynamics.

Challenges for incumbents and digital payments

• Incumbent financial institutions struggle to innovate due to existing customer demands.
• “The incumbents are focused on customers that are not asking for the new thing.” – Nick Shalek
• Digital payment platforms like Zelle and Venmo have increased transaction volumes.
• “Zelle does a trillion dollars of payment volume now, and Venmo’s got 109 million users.” – Nick Shalek
• Regulatory clarity is essential for the evolution of financial technologies.
• “I don’t think you can underestimate the regulatory point and legal clarity.” – Nick Shalek
• Understanding the competitive landscape between traditional banks and fintech is crucial.
• This insight highlights challenges faced by established financial institutions.

Goldman Sachs and the regulatory landscape

• Goldman Sachs is actively trading a wide range of crypto products with regulatory approval.
• “We are able to trade pretty much all the products that we have the regulatory approval to do.” – Nick Shalek
• The regulatory backdrop in the US is fluid, leading to more developments in the crypto space.
• “We are pretty excited by the fluidity of the regulatory backdrop in the US.” – Nick Shalek
• Collateral mobility is a significant focus for the market.
• “Collateral moves to collateralize derivatives, securities finance, and repo.” – Nick Shalek
• Understanding the regulatory landscape and Goldman Sachs’ position is crucial.
• This insight highlights Goldman Sachs’ strategic approach in the crypto market.

Privacy and economic models in crypto

• Privacy is essential for achieving on-chain finance at scale.
• “To achieve on-chain finance at scale, you have to solve for privacy.” – Nick Shalek
• Current incentive structures in crypto benefit infrastructure providers more than users.
• “The incentives drive all the economics to the infrastructure providers.” – Nick Shalek
• Economic models in crypto should prioritize user engagement over infrastructure profits.
• “It needs to look similar to credit card networks, meaning infrastructure is important but at the bottom of the value stack.” – Nick Shalek
• Understanding the importance of privacy in blockchain technology is crucial.
• This insight critiques existing economic models in crypto.

Canton ecosystem and product development

• The current ecosystem on Canton allows builders to focus on product development.
• “I’m proud that people building on Canton can focus on shipping better features.” – Nick Shalek
• Builders in the Canton ecosystem generate economic returns without launching additional tokens.
• “You should be able to make enough money on Canton without needing another token.” – Nick Shalek
• Understanding the challenges of token management in blockchain ecosystems is crucial.
• This insight highlights the value of a streamlined focus on product development.
• The Canton model is effective for monetization, indicating sustainability.
• This perspective is significant in the context of token economies.

Infrastructure and governance in crypto

• Large-scale institutions require reliable infrastructure for mission-critical operations.
• “I need to know that I’m building on infrastructure I can rely on for a mission-critical business.” – Nick Shalek
• Governance in crypto projects is akin to managing a technical product company.
• “We see an L1 no different than any other technical product company.” – Nick Shalek
• Understanding the importance of infrastructure reliability is crucial for institutional participation.
• Governance requires active participation and feedback.
• This insight highlights a fundamental requirement for institutional engagement in crypto.
• This perspective frames governance as critical for innovation and development.

Kantor network and blockchain integration

• The Kantor network aims to replicate today’s financial system on blockchain technology.
• “You need to replicate today’s financial system on those rails.” – Nick Shalek
• The misconception that blockchain is used for nefarious activities is being addressed.
• “That’s a massive misconception that is slowly being addressed.” – Nick Shalek
• Understanding the challenges of integrating blockchain into existing systems is crucial.
• Improved visibility and intelligence address misconceptions about blockchain.
• This insight explains the strategic focus of the Kantor network.
• This claim highlights a significant shift in the narrative around blockchain.

The future of digital assets and financial markets

• The future of digital assets will coexist with traditional financial systems.
• “You’d have to be a zealot not to look at how cards developed.” – Nick Shalek
• The SEC’s innovation exemption could impact digital native companies and traditional players.
• “We’re seeing the implications of the SEC’s innovation exemption.” – Nick Shalek
• Consumers now access a wider range of financial services through digital platforms.
• “There’s a really different way that the consumer may access financial services.” – Nick Shalek
• Understanding the balance between decentralized finance and traditional systems is crucial.
• This insight reflects a nuanced perspective on the relationship between digital assets and financial infrastructures.

Transformative potential of new technologies

• The future of financial markets will be transformed by new technologies and assets.
• “The future is gonna be weirder than we think.” – Nick Shalek
• Interoperability and real-time pricing enhance market efficiency and liquidity.
• “That’s only possible because of interoperability and real-time pricing.” – Nick Shalek
• We must be cautious in permissioned ecosystems to consider machines as part of the audience.
• “Be careful in a permissioned ecosystem to think of the audience as machines.” – Nick Shalek
• Understanding the implications of technological advancements in financial markets is crucial.
• This insight highlights a strong prediction about the transformative potential of technology in finance.

Canton and the dichotomy in crypto systems

• Canton aims to create a flexible protocol for interoperability between permissioned and permissionless systems.
• “You can compose a transaction between a permissioned application and a fully permissioned asset.” – Nick Shalek
• The current dichotomy in crypto between public and private systems is overly simplistic.
• “The reality of the world is that it’s not like that.” – Nick Shalek
• Understanding permissioned vs. permissionless systems in blockchain is crucial.
• This insight explains Canton’s innovative approach to addressing blockchain limitations.
• This opinion challenges binary thinking in the crypto space.
• This perspective suggests a more nuanced approach to system design.

Market sentiment and digital finance infrastructure

• Market sentiment around Bitcoin could lead to a valuation of half a million dollars.
• “Bitcoin is probably at half $1,000,000.” – Nick Shalek
• Market prices can be misleading indicators of the industry’s true state.
• “Prices are a misleading indicator to where the industry is at.” – Nick Shalek
• The infrastructure for digital finance is inadequate for future needs.
• “The infrastructure underneath is not good enough for where we need to go next.” – Nick Shalek
• The involvement of major financial institutions is essential for digital finance evolution.
• “It’s not gonna happen without the world’s biggest financial institutions involved.” – Nick Shalek
• Understanding market dynamics and utility of Bitcoin is crucial.
• This insight reflects a strong belief in Bitcoin’s potential future value.