Why banks can't move beyond blockchain pilots, according to Matter Labs

It's clear at this point that all of the markets will be upgrading to digital assets. All of the institutions will be moving their core systems eventually to this new, much more efficient and much more flexible technology. And our mission here is to help accelerate this mass adoption, giving the institutions connectivity on their own terms. Crypto markets move fast. You need research that keeps up. That's the stack. Grayscale's blog with sharp analysis from the team that's tracked digital assets since 2013. Head to grayscale.com slash the stack. Digital asset vaults offer transparency, but what about the risks behind the returns? S&P Global Ratings' new vault risk assessment delivers independent, forward-looking insight into vault credit quality, governance, and risk management. Move beyond transaction transparency to risk transparency. Learn more at spglobal.com slash ratings. inside a dependable watch hundreds of moving parts become one precise signal digital asset markets are just as complex CoinDesk data and indices turns fragmented market data into institutional grade data reference rates and regulated indices benchmarks used to price markets and build financial products trusted by institutions for more than a decade CoinDesk data and indices build on the market standard Alex Glukowski welcome to Markets Outlook Thank you for having me. All right, Alex, I'm going to let you kick us off. You just made a big announcement at Money 2020. Talk to us about what it is. Well, we announced a new product by Privium, which is Privium Commander. It's software for banks and financial institutions to issue, run, operate digital asset services under their rules. It's basically a control plane for your digital assets for large financial institutions. Talk to me a little bit more about this. Let's dig one level deeper. What problem does this solve for institutions that they weren't able to address before? We've been working with institutions now for over two years. We're coming from the crypto-native background, building blockchains with their knowledge proofs. And as we entered this space, we realized that the big gap between the pilots and actual adoption of blockchain technologies and digital assets is to a very large degree operational friction. It's very hard for the institutions to operationalize the pilots, the experiments that they have done, because the initial implementation of the digital asset services can be done with this small team. But as you roll it out to the large organization that is heavily regulated, that has a lot of rules that have to be all followed, a lot of compliance requirements, things become a lot more complex. So you can think of any kind of SaaS software, like an AI system or a messaging even. When you experiment with it, you run it for yourself. Maybe you invite two colleagues. You try sending messages during some basic operations. It works. But then you have to roll it out to the entire team. You need to integrate your identity systems that are already in place. You need to provide administrative access. you need to provide various degrees of permissioning, you need to give your security teams and operational teams access to verify the logs, doing the monitoring, connect the existing systems and around the data analytics. All of that is orthogonal to the actual operations, to the actual service that you build. And so many institutions end up doing this plumbing rather than focusing on their core competence, which is understanding the markets, understanding the financial services and products and customers' needs and doing the compliance work, which they excel at. And so we realized that there is a very big demand for this service, and we moved it into a separate product that institutions can adopt very easily, connect to the existing systems and have a single place from which they manage, control and operate all of the digital services. You mentioned that institutions, you know, often try to do this plumbing themselves and it takes them away from doing what they're actually good at. Can you give me an example of, you don't need to name an institution, of, you know, how this has maybe gone wrong, maybe stopped a pilot or derailed a project? Well, it's the numerous institutions that you have not heard of. Almost everyone has experimented with digital assets to some degree. A lot of banks have internal systems, internal ledgers. like Hyperledger Besu, where they run some internal experiments and some internal operations. This has not yet entered the mainstream adoption with connection to other banks. Because as you open your system to the external world, the controls become a lot more essential. Whatever could run inside of your organization as a closed loop is not appropriate to just expose to the outside. you really need to manage permissions and policies and do all the compliance controls um and uh i can give you examples of institutions that have implemented this such as Cari Network with tokenized deposits uh that has now thirty banks and launching marching towards production uh very soon uh the tokenized deposit core function is relatively small and bounded actually most of the work is in the uh in this control and operational uh layers above it you know tokenization is a relatively simple smart contract but connecting this to all the systems giving individual participant banks their own admin uh dashboards where they can manage their users their permissions their policies uh connect to their own core systems all of that is taking a a much larger chunk of the work and the burden. And these institutions are not really software companies. It's not their core competency, and it should not be. They adopt products, they adopt various SaaS technologies for treasury management, for sales, operations, CRM, and so on. And there is no difference or no reason why it should not be the same with digital assets. Now, talk to me about the path from this into ZK. Is there one? There is absolutely one. The institutions that adopt Commander can later expand. So Commander works with existing systems, existing chains that they already operate, both private chains and also public chains. So they can use Commander to manage digital assets on the public permissionless chains. And there is a path to upgrade it later to a full-fledged ZK-based permissionless ledger that is a high-performance, secure blockchain, secured and powered by zero knowledge proofs. And from there, to connect later with other institutions. And we'll have more to say about this in the near future. If you're serious about crypto investing, you need more than headlines. You need research you can trust. That's The Stack. The blog where Grayscale's research team breaks down what's actually driving digital assets. From Bitcoin and Ethereum to the emerging trends shaping what's next. No hype, just sharp analysis and insights from the team that's been navigating crypto markets since 2013. Visit grayscale.com slash the stack and subscribe today. As digital assets continue to evolve, investors need more than on-chain data. They need insights into the risks behind the transaction. That's why S&P Global Ratings launched Vault Risk Assessment, or VRA, a new analytical approach designed for digital asset lending vaults. VRA delivers independent, forward-looking analysis of credit quality, risk management, governance, and operational resilience, helping bring institutional-grade risk transparency to a rapidly growing market. Whether you're allocating capital, managing a vault, or conducting due diligence, see beyond transaction-level transparency. Learn more about vault risk assessments at spglobal.com slash ratings. Inside a dependable watch, hundreds of moving parts become one precise signal. Digital asset markets are just as complex. Coindesk data and indices turns fragmented market data into institutional grade data, reference rates, and regulated indices. Benchmarks used to price markets and build financial products. Trusted by institutions for more than a decade. Coindesk data and indices. Build on the market standard. When it comes to ZK, talk to me a little bit about what institutions are asking for. I know ZK solves on the privacy front and performance, but what are you hearing from institutions? Let's start with privacy, which is an essential requirement for any regulated entity for running their real internal operations and upgrading the internal rails to the new digital technologies. technologies um privacy uh has been a problem that was attempted to be solved by by uh various projects including a number of zk projects and they so far failed to clear this operational ease the this native integration with operational controls because you either have systems that are uh fully anonymous but then the the privacy is managed on an individual user basis and there There is no overview, there is no access to regulators, auditors of the bank, to the internal security teams to see what's happening in there. Or alternatively, there are so-called privacy solutions that actually delegate a lot of your privacy to some external notaries or external third parties that are promising you confidentiality, but you actually have to trust them. knowledge proofs give institutions a direct privacy experience. The data physically never has to leave your devices and systems under your control within your institutional security perimeter. And you decide on your own terms who you're going to share the data with, who has access, who may transact, and who may not, and so on. So that's a fundamental upgrade. And on the performance side, what we hear is the performance is not so much of a concern today, but at least for the majority of institutions. For some, it pretty much is because they process not thousands, but hundreds of thousands or even millions of transactions per second in aggregate. And so at least for the peak demand times, they need the blockchain systems to be ready. They need to provision those capabilities ahead of the demand because it's not acceptable for a large institution to all of a sudden stop because you reach the limit and then you start throttling your transactions and then it leads to some serious consequences such as cascade of liquidations for trading and other similar issues. and that's why you need some reserve capability and blockchain systems so far also have failed to clear the bar and luckily we now have very performant both the core blockchain engines as well as zero-knowledge proofs to secure those engines with very high throughput and low cost of operations. And Alex, the last thing I'm going to ask you is when you look to the future, what does that future look like that you're building towards and how does this new product that you just announced at Money 20/20 fit into that our vision is a global interconnected digital asset uh economy and it's clear at this point that all of the markets will be upgrading to digital assets all the institutions will be uh moving their core systems eventually to to this new uh much more efficient and much more flexible technology, and our mission here is to help accelerate this mass adoption, giving the institutions connectivity on their own terms. What Privium enables is really having digital assets on your terms with full control, full flexibility, and this is what we're building. Alex, thanks so much for joining me today. Thank you, Jen.