Genki?

That is 100% of the Japanese I know.

One word.

It is so great to be here.

Thanks to all of you for coming.

I love Tokyo.

The weather, maybe not so much.

It always seems like I’m here when it’s really hot.

But I heard you guys had some crazy rain.

So I’m glad I missed that.

The food and the people always amazing.

And this community is just it is unmatched anywhere else in the world.

So it is just such a pleasure to be here.

I’m sure most of you know who I am.

I’m David Schwartz, CTO at Ripple.

Co-creator of the XRP Ledger.

Let’s just get right into it.

And let’s talk about what’s next for DeFi on the XRP Ledger.

So I want to put a couple of stats up on the screen here.

And I’ll show them in both Japanese and English.

But the one that I really want to call your attention to is that second stat, about 97% of institutional investors believing in tokenization.

In any space, the people who are in that space believe in it.

If you’re working in AI, you believe AI is going to change the world.

Maybe not necessarily for good.

But you’re excited about it, right?

People inside a space are always excited about it.

They always believe it’s important and it’s going to do big things.

But when you know that it’s real is when people outside the space feel the same way.

Institutional investors are not blockchain people, right?

They’re not tech people.

In a recent survey, 97% of institutional investors said they believe the tokenization is going to happen.

And I think that’s that’s very telling that institutional DeFi is inevitable.

If you look at some of these other stats, the growth of stablecoins.

Stablecoins are institutional defi products.

If you look at the companies that launch stablecoins, Tether, Circle, soon Ripple, they’re institutions, right?

And most of us will never do business with them.

If you hold USDC or Tether, you probably didn’t do business with Tether or Circle, right?

You got it from an exchange or you got it from a deep from a DeFi exchange.

These are products that are heavily regulated that are enabling totally unregulated DeFi ecosystems.

And that’s the direction that we think that the future is going to go, at least over the next year or two with things like real world assets.

So how’s the XRP Ledger going to be involved in that?

Well, the trick is to make the XRP Ledger the preferred blockchain for institutional grade DeFi and real world asset tokenization.

And for that, you need four things.

Number one, you need the right primitives.

You need primitives that match these real world use cases.

You need tools that are built to match the actual problems that people have.

You need a compliance infrastructure.

If every company has to build their own compliance, well, big companies like Ripple will be able to operate on the ledger, but smaller companies won’t.

Individuals don’t have compliance requirements generally, but institutions do.

And lastly, there needs to be a solid developer experience.

There needs to be an ecosystem of tools that developers can use in order to build.

What you see on the slide here are some of the things that Ripple’s been building and the XRP Ledger community has been building to provide these institutional DeFi capabilities.

The Automated Market Maker.

I will go into more detail about all of these things later, but I just wanted to briefly summarize them to kind of give you the high level road map.

So you have the Automated Market Maker.

You have the Lending Protocol, which brings real institutional lending.

You have Decentralized Identity, which solves that problem of smaller companies being able to come onto the ledger.

Oracles to bring real world pricing data.

Multi-purpose Tokens to increase the token support of the XRP ledger.

And various different types of Smart Contract programmability.

So first, I’m going to talk about the Automated Market Maker which is live on the XRP Ledger right now.

This is an Automated Market Maker that trades assets and provides liquidity at all times.

And it integrates tightly into the order book that the XRP Ledger has.

We call this aggregate The Super DEX.

And what that means is that trades on the XRP Ledger can rebalance AMMs and AMMs can provide liquidity to satisfy both trade offers and payments.

This is a very unique feature of the XRP Ledger’s AMM implementation.

And there are several other unique features that are worth calling out.

One of them is the Continuous Auction Mechanism, which reduces impermanent loss.

This is a fairly clever feature that reduces the losses due to arbitrage.

If you’re a token holder in the Automated Market Maker, you hold a sort of share of the Automated Market Makers yield.

Arbitragers will trade against the Automated Market Maker when prices change and take some of the yield away.

What this Continuous Auction Mechanism does is it enables people to bid for the right to sort of be the first one to arbitrage.

And if they pay, and so some of the money that would normally be made by arbitragers and be losses to the pool part of impermanent loss instead is yield from the auction mechanism.

So forthcoming is the lending protocol.

This is a true institutional DeFi feature.

This is institutional lending.

This is these are like mortgages or commercial loans.

They’re not over collateralized like DeFi loans.

These are traditional loans and they’re enforced off ledger.

So that means that the credit check.

If the payments aren’t made, there might be litigation.

That all happens off ledger, but the funding all happens on ledger.

So that means that if you’re interested in funding the loan, you could pay into one of these lending pools.

And as payments are made on the loan, you could receive money automatically from the Ledger as those payments are made.

And you could also use the loans as collateral.

You could use your share of the payments as a form of payment.

So it’d be very liquid for the holders of these loan pools.

Interoperability is absolutely, absolutely critical.

If you think about what makes the Internet great.

When you use a website, you don’t have to think about where in the world that website is.

You don’t have to think about what software the website is using.

You don’t have to think about whether they’re connected by Wi-Fi or fiber optic.

Like it just works.

If we build an ecosystem on blockchain where users constantly have to think about which tokens they’re using or which tools or block chains are using, the users are going to have terrible experiences and we’re not going to have users.

What we need is we need a sort of unified ecosystem where users can get good experiences regardless of where they store their funds or what tools they’re using.

We’re hoping the XRP Ledger can be positioned to provide a sort of trading hub for connecting some of those ecosystems for things like Stablecoins and Real World Assets.

Programmability, extremely important.

The XRP Ledger itself is a fixed function Ledger.

It has transactors that have a broad array of complicated functions.

But they’re limited to the functions that were envisioned when those transactors were designed.

On an EVM Sidechain, you can implement smart contracts that do whatever you want.

There’s some disadvantages to that around security and throughput and cost, but there’s a tremendous advantage in flexibility.

So if they have a use case that isn’t well matched by the existing transactors, the EVM Sidechain would be a place where you could do that.

It is compatible with other EVM chains.

So if you know how to write EVM Smart Contracts, you already know how to work on the EVM Sidechain.

It’s built on the Cosmos SDK, so it gets all the benefits of that.

It’s going to use Axelar as its bridge.

So that means XRP will be the native token, XRP will be the gas token.

And it will use a form of consensus that’s very similar to what the XRP Ledger uses.

You’ll be able to use the same tools that you use with other EVM block chains,

So you’ll be able to use Meta Mask.

You’ll be able to use us explorers.

It will look like most EVM chains, except XRP will be the native token.

We are extremely interested in native smart contract programmability.

You’ve probably heard us talk about this lately.

There are certain things that I think the smart transactors on the XRP Ledger can probably handle a significant percentage of what people want to do.

We have NFTs. It does most of what people want to do with NFTs.

We have an AMM. It does most of what people want to do with AMMs.

We have a lending protocol. It will do most of what people want to do with lending.

But it won’t do all of it.

It’s impossible for the designers of a blockchain to foresee every quirk in the use case.

Native smart contract functionality will enable people to tweak those Ledger features to get that sort of special sauce that they want.

We’ve also talked to a lot of people who are building tools and user interfaces on top of the XRP Ledger.

And one of the things that we’ve heard from them is they can sort of build around the XRP Ledger.

Like they can build a user interface and they can build an explorer and they can build a wallet.

But you can’t actually build on the XRP Ledger.

You can’t build your own AMM that has some special feature that you think is amazing.

You can’t tweak NFTs to have like your own functionality unless it’s done off-ledger.

What we’re hoping is that native smart contract programmability will enable some of those features on-ledger.

So people will be able to build their own products on-ledger, their own DeFi applications on-ledger.

And so maybe the native transactors will cover a 70 – 75% of the use case.

Maybe we can get another 10 – 15% from programmability.

But also it will enable people to use pieces of other people’s products and build their own in a sort of a new system on top of the XRP Ledger.

So we’re excited about that.

It’s early.

I’m hoping that we can come up with a proposal that will take months and not years.

I’m hoping we can build something that’s sort of small and safe.

We’re never going to turn the XRP Ledger into an EVM chain, right?

You’re never,

You can’t just rip up a layer one and completely change it because you would lose all of the things that are great about the XRP Ledger today.

And so we’re very open to suggestions.

Hooks might be the solution. Or some version of Hooks.

But what we’re hoping is that we come up with something in months and not years.

That is small and simple enough, that it’s low risk, that we can add it to the XRP Ledger without risking stability.

There’s a base that we can build off so we can continue.

If it’s successful and people like it, we can add new features to it.

And lastly that it enables real world use cases day one.

You never want to deploy a feature on a Layer 1 blockchain in the hopes that someone will find some use for it in the future.

You never want to do that.

You always want to make sure that things are useful immediately.

We are extremely open to community feedback on this.

We don’t have the solution.

We announced that we’re interested and we’re looking for solutions and Hooks may be it.

It may be something similar.

We don’t know.

I want to talk about the Decentralized Identity feature.

This is extremely, extremely important.

When you launch a project as a company on a blockchain, you often have regulatory requirements that you have to meet.

And the traditional way that you would solve that is you would have someone send you a picture of their passport or identity document.

But this is really terrible for both the users and for the company.

For the user, who are you sending your passport to?

You don’t know who they are.

You don’t really have a good reason to trust them.

The whole benefit of blockchains and smart contracts is that you don’t have to extend that much trust.

They can’t steal money from you, right?

But if you have to send them a copy of your passport, that’s a lot of trust that you may not have.

And the other problem is they don’t want a copy of your passport.

They have to store it.

Well, what if it gets stolen? What if they get compromised?

It’s cost. It’s risk.

It’s all things that they don’t want.

Decentralized Identity solves that problem by allowing you to prove your identity to an identity provider of your choice.

This is a company whose whole business is verifying identity.

They have spent the money to store the data securely to onboard customers.

They’re in that business.

They want to do this because it’s what they do.

And they will provide you a digital credential that you can store on the Ledger.

That will enable anyone to be able to prove that you in fact like are not a terrorist, that your identity is on file somewhere.

And they’ll be able to maintain that on-ledger.

And so a company will be able to see that proof without you having to interact with them directly.

This is a huge, huge benefit for smaller companies.

Very large companies, they can do all of the regulatory requirements already.

It’s not a huge burden for them.

Ripple’s always going to do their own identity checking.

Large banks are always going to do their own identity.

They’re never going to let someone else do it.

But smaller companies don’t have a compliant.

If you’re two people, you don’t have a compliance department, right?

And you can’t.

Oracles are extremely important in DeFi applications to provide real world pricing data.

That’s especially important in applications that use collateral.

So if you use XRP as collateral, you need to know its value in dollars or yen or some other currency to know whether there’s sufficient collateral.

If you’re going to have margin loans, if you’re going to have derivatives, you need this pricing data in order to trigger certain smart contract functions or other protocol functions.

This is currently been proposed for the XRP Ledger.

Brand protocol DIA have offered to provide Oracle services.

And this will handle all of those use cases where you need that real world pricing data to make DeFi decisions.

Multi-Purpose Tokens fix a sort of technical limitation with the XRP Ledger.

Currently, the XRP Ledger has several different types of tokens.

XRP is its own thing that follows its own rules.

It has finite, predefined divisibility.

There are NFTs which work well for like non-fungible tokens that represent artwork or things like that.

There’s issued assets which were great for money.

They’re great for like things that are infinitely divisible and where the quantity is the only thing you care about, right?

If I want to know how many dollars or yen you have, I just want a number.

But there is a sort of intermediate zone of assets that are not well served by any of those asset types.

A good example might be concert tickets.

If you modeled concert tickets as NFTs, you’re gonna have to create thousands of NFTs for every concert.

And It’s kind of hard to understand that they’re all tickets to the same concert.

If you did them as an issued asset, as a fungible asset, well, what if somebody gets 0.9975 of a ticket?

It shows up at the venue.

You’re probably gonna have to let him in.

But what if like 1000 people all have 0.9?

What if some guy just keeps buying fractions of tickets just to like?

So you don’t want them to be modeled by any of the existing token standards on the XRP Ledger.

What this Multi-Purpose Token standard has is precisely defined divisibility

And the token class is an object.

So for example, if they’re all tickets to the same concert, you can actually have an object with an identity that says these are all tickets to the same concert.

Whatever they are.

If they’re dollars and cents or yen or whatever they represent, you can actually have a data object on the Ledger that explains what that is.

And that’s currently not possible with any of the current token standards on the XRP Ledger.

This is just a snapshot of the various companies that are building on the XRP Ledger right now in various different areas.

Couple things I want to point out.

Number one, it’s possible some of these companies are bad.

Like it’s very, very hard for us to tell.

And just because a company is not on here does not mean that they’re not building on the XRP Ledger.

They’re not a great company. We don’t love them.

It’s always a difficult challenge for us to decide who to include and who not to include.

I just want to call out for a second.

You notice that there’s a section in the upper right of gaming and metaverse companies.

Now, I didn’t talk about gaming and metaverse at all.

That’s not sort of on Ripple’s strategy for the XRP Ledger.

But that doesn’t mean that we don’t think it’s a good idea, right?

Every good idea is not a strategy and some things that are not part of our strategy are going to be good ideas.

We’re very supportive of gaming and metaverse products, where we give grants to them.

They’re welcome to participate in every way.

We will provide Technical support.

Just because you’re not on our road map doesn’t mean we don’t love you and think you’re great.

It’s just in order to have a strategy, there have to be things that aren’t part of the strategy.

In order to know what you are, you have to know what you aren’t.

But I just want to point out that like we think institutional DeFi is probably for the next year or two where a lot of the action is and probably where the most growth is going to be.

We could be wrong about that and that doesn’t mean that other things are not going to take off as well.

Like we don’t have a crystal ball anymore than anybody else does.

So please build where your passion is.

And we’re fully supportive.

So here are some resources that should be useful to anyone who wants to build.

There’s the XRPL Commons, the Learning Portal, Grants, and the Accelerator.

You’ve got links to all of those things here.

Again, we’re very supportive of projects.

We’re super interested in institutional DeFi.

Again, that’s where at least I think a lot of the growth is going to be over the next year or two.

But that doesn’t mean that we’re not supportive of other projects.

You don’t have to fit into our roadmap to build on the XRP Ledger.

It’s a public good.

It’s a resource for all of you to use however you want.

Thank you.