The SEC is opening the door to tokenized trading through agency guidance, but a compliance gap threatens to derail Wall Street's on chain ambitions. While crypto and AI superPACs for hundreds of millions into the midterm elections to shape future policy, regulators are already forcing financial institutions to shift from simply detecting illicit activity to actively enforcing compliance on chain and to address this enforcement gap.
Our next guest, Philip Predicate, which has already screened over $1 billion in transaction volume alongside partners like Moneygram and consensus, while joining us live here at the New York Stock Exchange to talk about why tokenization is outpacing compliance, is Nikhil Raghuveera, co-founder and CEO of predicate and a nonresident senior fellow at the Atlantic Council.
Great to have you here. Thank you so much for joining me.
Yeah, thanks for having me as well. Great to be here.
Well, we are here on Wall Street, but oftentimes we pay attention to what happens in our nation's capital. So of course we're looking at the clarity vote. But that did not pass. And we are focusing on guidance coming out from the regulatory agencies, including the SEC and the CFTC. But tell us what's happening on the ground and what can actually happen when it comes to tokenized stocks.
Yeah. So what you're seeing is you're right. Clarity didn't pass. And so as a result you're seeing the regulators come in and step in and say we can provide some of the the working model here for at least a period of time. And that's what you're seeing with the SEC innovation exemption. You've seen a number of actions by the CFTC as well.
And really all of this is designed for how can we start putting in place a framework for more regulated digital assets that are issued on blockchain technology? Really what Clarity Act is supposed to solve for? And to your point around tokenized stocks, I think really what the SEC is looking to do is how can they help onshore that.
So blockchains are great from a technology perspective. But the regulatory framework hasn't been there for us issued tokenized stocks. And that's really what they're working on.
Yeah. And of course we have to talk about the infrastructure the plumbing. So tell us what's happening when it comes to the infrastructure side and what needs to be done.
Yeah. So I mean for us really it's we have we talk all about intelligence and data, not only in crypto and digital assets, but also AI and even traditional systems. So you have all these systems that are designed for intelligence. The real question then is, okay, how do I have this enforced within my actual financial products?
And the programmability of blockchains allows you to really think about great. We can embed a lot of these controls that exist in traditional financial systems within your digital asset. And that's really where we're seeing the move is how do we control where these assets go. How do we ensure that it adheres to the various regulatory requirements both federal and also state?
So let's talk about the compliance gap here and what predicate is working on.
Yeah. So we build technology. We essentially build a control platform. So if I'm a financial institution or a fintech and I am creating a tokenized product, usually a tokenized asset, the immediate question will be we have all these different compliance controls that we enforce in our traditional systems.
How do we have the same controls when it comes to our digital asset product? And so we have the control platform that gives the compliance team the end to end control over who can access that product, where they can access it, when they can access it across both primary and secondary markets.
And of course, for our viewers out there who are watching, they might say bad actors do occasionally tend to break through. So we're exactly are we when it comes to global sanctions enforcement?
Yeah. I mean, global sanctions enforcement has always been a challenge, not just in digital assets but in traditional systems. Right. That's been and if we look recently, there's been you're seeing a number of exploits and hacks as well. I think in the last year there's been almost like 900 million or $1 billion worth of exploits.
So this isn't going away. Sanctions is going to be a continued challenge, and this is not something that magically disappears. The real thing, then, is how do you have enterprise grade, real time systems that can immediately respond to what's happening in the world and not just in this one specific instance, but across all the different financial systems that we operate across.
And that's really the problem that we have to solve for as we think of a more real time financial system than anything we've historically had before.
And of course, while I have you here, we're here at the New York Stock Exchange, and we're talking about a highly regulated space in financial services. So when it comes to the outlook moving forward, what do you make of the role of artificial intelligence or as some like to call it, superintelligence?
Yeah. When we think of AI, I think really what we'll be seeing and really where the world is moving is an agent based system. So it's not just you and I transacting directly for as it relates to a financial system. It's rather you have AI agents who are acting on behalf of us, and AI agents acting on behalf of AI agents.
All this means that you're saying that what we will see is a significantly larger volume of capital flow, both in terms of dollar amount, but also just the number of quote unquote users. And this all is happening real time, right? It's going to be moving faster than you and I have historically just gone and hit submit for a transaction.
And that's the world that we're seeing and that converges across the existing financial system, but also digital assets. And this all gets to a case of 24 over seven capital flow globally. That's what we'll be dealing with. It's a more globalized system.
Yeah. And you bring up an important point because when we're talking about 24 over seven trading, not just in the US but also around the globe and tokenized stocks, then there are a lot of concerns for a lot of stakeholders out there. So what would you say you're focused on and what gives you the competitive advantage?
Yeah. So what we're focused on is how do you have real time enforcement within your digital asset product. And that's not something that's easy to do. It's really complex because to your point, there's just so many moving parts. There's so many users. There's so many different markets and jurisdictions.
How do you have control over all of that, and how do you deal with all this happening? Not just on a 9 to 5, but 24 over seven at the 3 a.m.? Because there's a market activity happening in the other side of the world, um, on a Sunday. Right. And so what we really and where we really are competitive edge is how do you have something that has the the real time latency, the real time capital flow, the observability, the monitoring, the enforcement?
How do you have controls, real time controls over everything, both automated and manual, uh, AI based everything. And so I think that's really what we're honing in on.
Well, Nicole was great having you here at the New York Stock Exchange. Thank you so much for joining us. And thank you so much for telling us a little bit more about the story behind predicate today.
Thanks for having.
