Making Markets

Kevin Miao: Crypto and Credit - Moving a Trillion Dollar Market On-Chain - [Web3 Breakdowns, EP.64]

Mar 31, 2023

In this episode, Kevin Miao, Partner and Head of Credit at BlockTower Capital, discusses bringing the multi-trillion dollar securitization market on-chain. He explains how this will reduce friction, errors, and fees. They also explore the potential of blockchain technology in financial markets, securitization's role in reducing binary risk, and revolutionizing the mortgage industry. They discuss the challenges and potential of utilizing blockchain technology for loans and express excitement for bringing more aspects of the crypto space on chain.

01:00:59

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Kevin Miao

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Quick takeaways

BlockTower Capital is using blockchain technology to transform the traditional finance world and bring the multi-trillion dollar securitization market on-chain, reducing friction, errors, and fees.

The adoption of blockchain technology in finance faces challenges regarding privacy and reversibility, with a focus on achieving privacy-preserving solutions and exploring smart contract functionality and dispute resolution mechanisms to mitigate risks and ensure a smooth transition.

By automating and streamlining the securitization process through technology, the cost of capital can be lowered, risks can be reduced, and unnecessary intermediaries, fragmented databases, and trust-reconciliation processes can be eliminated, revolutionizing the securitization market.

Deep dives

Moving traditional finance to blockchain rails

The guest, Kevin Mao, discusses the potential of blockchain technology in transforming traditional finance. He explains how his company, Block Tower Capital, is using smart contracts to create collateralized loan obligations (CLOs), a type of securitization. By representing each individual bond as an asset-level NFT (non-fungible token) on the blockchain, they can automate the distribution of cash flows and streamline the entire process. This not only reduces friction and errors but also lowers costs associated with intermediaries, such as calculating agents and trustees. The goal is to eventually bring the entire process of structured credit on chain, although the current implementation still requires some trust and manual intervention.

The Role of a Digital Clearing House in Smart Contract Transactions

01:20

Blockchain's role in trade settlement process explained

01:21

The Exciting and Challenging Complexity of Systemic Change in Crypto

01:48

The Importance of Considering Risk in the Financial Industry

00:47

Introduction

2min

From Traditional Finance to Crypto Rails: Transforming the Trillion Dollar Market

5min

The Potential of Blockchain Technology in Financial Markets

1min

Securitization and its Role in the Financial Market

3min

Blockchain Technology in the Mortgage Industry

26min

Bringing Loans onto the Blockchain

22min

Excitement for On-Chain Expansion and Bridging DeFi and Traditional World

2min

This is Eric Golden and my guest this week is Kevin Miao, Partner and Head of Credit at BlockTower Capital. I’ve been excited for this conversation because while a lot of people in crypto seem to be focused on building a brand new financial system from scratch, this conversation focuses on how crypto rails can improve the traditional finance world. After nearly a decade at Citi, Kevin straddles both the TradFi and the DeFi world, and at BlockTower, he is working on bringing the multi-trillion dollar securitization market on-chain. We go deep into the weeds in this one, first getting into the nuts and bolts of how credit and securitization traditionally work, before diving into BlockTower’s approach to transform this entire process, moving it on chain, which will reduce friction, errors. and consequently fees. Enjoy.

For the full show notes, transcript, and links to the best content to learn more, check out the episode page here.

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Show Notes

(00:04:00) - (First question) - The impact of TradFi shifting towards crypto infrastructure

(00:14:00) - How crypto could drastically reduce friction in credit markets and mortgages

(00:28:29) - Building crypto rails in parallel to legacy systems to prove their power and destabilize those traditional structures

(00:37:15) - The gravity of competing with the most entrenched American industry and how Blocktower’s system addresses this

(00:45:22) - How they cooperate and compete with different TradFi and DeFi players

(00:47:38) - Considerations for privacy and reversibility with crypto-based banking

(00:55:41) - How blockchain in banking can eliminate much of the human error in the system

(00:58:57) - What he’s most excited to see built over the next six months and six years

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Making Markets

Kevin Miao: Crypto and Credit - Moving a Trillion Dollar Market On-Chain - [Web3 Breakdowns, EP.64]

Episode guests

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Moving traditional finance to blockchain rails

Benefits and challenges of blockchain integration

The future outlook for on-chain structured credit

Improving Securitization Process and Lowering Risk

Automated and Streamlined Securitization Process

The Role of a Digital Clearing House in Smart Contract Transactions

Blockchain's role in trade settlement process explained

The Exciting and Challenging Complexity of Systemic Change in Crypto

The Importance of Considering Risk in the Financial Industry

Remember Everything You Learn from Podcasts