Anastasia Kinsky: We are at the Alpaca Partners Summit in Lisbon, and I am joined by Alex Roland, who is the general manager of tokenization at Alpaca. Alex, thank you for joining me.
Alex Roland: Thank you for having me.
Anastasia Kinsky: Talk to me about the origins of tokenization at Alpaca. I know you guys have been across the board. You’ve been the foundation for most fintechs to be able to build and transform themselves for so long. What is the origin story for tokenization?
Alex Roland: Tokenization has actually been a part of our business for longer than you might expect. In 2022, one of our co-founders, Hitoshi, posted a white paper called [unclear: “The Jungle Protocol”], where he basically pitched an open protocol where users could tokenize their assets. It wasn’t just limited to stocks, but naturally, that’s where we wanted to start. So it really laid the groundwork for where we wanted the industry to go, and we really started seeing it pick up, I would say, in the last 2 to 3 years.
Anastasia Kinsky: Exactly. That is still very Alpaca-branded, right? [unclear: “The bill is giving other people the ability to build”; likely “the ethos”] in a way that makes sense for them, and as a result, transforming an industry and leading the industry by example for what can be done. So when you say it’s one of the quickest growing parts of the business, where are you seeing that growth in particular, and how does that relate to the customer regimes, the regulatory regimes, that your customers are facing?
Alex Roland: At first, naturally, we started noticing the crypto-native users were adopting this technology very fast. I think they loved the ability to self-custody stocks in their own wallet and interact with DeFi using stock-based assets. But now we’re seeing even more traditional firms looking to add tokenized stocks as an additional asset class, sometimes right next to their normal stock product. So it’s really about giving users a lot of choice in what they can do and what assets they can buy.
Anastasia Kinsky: And interesting to see the different approaches taken by different groups, the different [unclear: “churches”], as I like to call them, who weren’t necessarily always talking, weren’t necessarily always part of the same group, but are coming together over this common idea that actually, if you tokenize a share, you can do a lot more than just settle it very quickly. You can also add that transparency, programmability, and composability to it.
Alex Roland: Absolutely. I think the atomic settlement nature of crypto obviously guarantees a certain level of risk control. It’s a great way for users to access their funds immediately. But I would argue the more interesting use cases have to do with [unclear: “general finance”], which has obviously been in the securities business since its creation. Being able to borrow against your portfolio or lend out your portfolio is pretty opaque today in traditional brokerage accounts, whereas DeFi structurally encourages that activity to a degree that we don’t see.
Anastasia Kinsky: So it’s really exciting for the end user, that truly transformative digitalization. Talk to me about ITN. What is it, what does it stand for, and what are you trying to change?
Alex Roland: Just to give a bit of background, Alpaca today has 10-plus issuers across our partner base in a variety of different countries. We noticed early on that one of the big blockers to their growth, and to the growth of the markets those issuers were starting to create, was capital fracturing. So we set out to build ITN, the Instant Tokenization Network, so that participants can move between the token and the underlying share in real time. Basically, this is in-kind minting and redemption for stocks and tokenized stocks. Just to be a little more specific, if you think about a traditional market structure today, a market maker has one or a couple of accounts where they manage margin and risk across a variety of different assets and a variety of different tickers. It’s super efficient because they have a prime broker that can manage across all these different instruments. But in a tokenized world, you have to have inventory in every single ticker, across every single chain, potentially across multiple issuers. All of a sudden you have to maintain hundreds or thousands of accounts to market make and offer liquidity to retail. So without the ability to bridge, it’s truly difficult to build a competitive, liquid marketplace. I know that was a long-winded answer. Sorry.
Anastasia Kinsky: That’s exactly what [unclear: “we need”]. I think this is painting exactly the picture that we like: where is the issue, and what is the solution. And so ITN is the solution?
Alex Roland: Correct. In order to solve the capital fracturing and to allow bridging, it allows in-kind minting and redemption. Right now that’s for market makers. However, we see a vision in the future where retail participants can also tokenize their stocks using in-kind minting and redemption.
Anastasia Kinsky: Thank you so much for explaining that. We look forward to hearing more about ITN and the long-term vision for that coming true.
Alex Roland: Thanks so much for having me.
Anastasia Kinsky: Thank you. Appreciate it.
