Recapping Key Themes from The Bridge Conference

On November 3rd, 2023, The Tie hosted The Bridge, A Crypto Corporate Access Event, at the New York Stock Exchange. This flagship conference attracted hundreds of executives from top-tier financial and digital asset firms.

The conference reflected The Tie’s position at the intersection of institutional finance and digital assets, bringing together blockchain innovators and leading institutional investors. With a program of expert-led panels, presentations, and breakout sessions, The Bridge addressed key narratives and topics for institutions, with a goal of restoring trust in the crypto industry and fostering the institutional adoption of blockchain infrastructure.

In his opening remarks,The Tie’s Co-Founder & CEO, Joshua Frank, underscored the importance of rebuilding trust, particularly in the aftermath of the FTX collapse, emphasizing the industry's commitment to transparency and reliability.

More than 350 participants from over 200 banks, asset managers, hedge funds, venture and private equity firms, exchanges, prime brokers, and token issuers attended The Bridge. Industry experts explored the opportunities and challenges of crypto and blockchain technologies, with a specific focus on growing institutional involvement. Panelists shared insights that enhanced attendees’ understanding of the industry’s growth and momentum into 2024 and beyond. We are grateful to have hosted an event that brought together leaders from across the industry, and look forward to hosting The Bridge again next year.

What follows is a recap report from The Bridge, featuring a number of key themes that emerged from the event’s dynamic discussions. Please note that The Bridge was held under Chatham House Rules, meaning no comments or opinions can be attributed to individual speakers or institutions.

Throughout The Bridge conference, a recurring theme was the transformative potential of the SEC’s approval of Spot Crypto ETFs (BTC, ETH). Speakers discussed how the introduction of these ETFs will bring substantial benefits to financial markets. There was general agreement regarding these ETFs’ ability to mitigate credit risk in the crypto market, thereby contributing to overall market stability. The anticipated approval of Spot ETFs is expected to establish a closer link between the crypto assets’ price action and liquidity, fostering a more efficient, mature, and sophisticated market environment.

Moreover, discussions resonated around the surge in trading volume in anticipation of ETF approval, with institutional players contributing a noteworthy 80-85% on one major exchange. This resurgence in interest, as highlighted by speakers, was also observed through the reactivation of previously dormant trading accounts, signaling a renewed vigor in market participation. Open interest and futures volumes on another prominent exchange have witnessed a notable uptick, reflecting the market’s improving sentiment towards crypto assets, and increasing optimism that an ETF will be approved in the near future.

Speakers reiterated the potential magnitude of ETF approval, emphasizing that even a small percentage of investment portfolios migrating into a spot Bitcoin ETF could have a significant impact on the overall market, especially in the long term. The January 10th, 2024 deadline for the approval decision adds a layer of suspense to the ongoing conversation, with a prevailing sentiment of cautious optimism.

One of the most discussed themes across various panels at The Bridge was tokenization of real-world assets (RWAs). The heightened interest in RWAs has been notably influenced by the progress in infrastructure developments and the steadfast interest in prominent cryptocurrencies like Bitcoin and Ethereum. Several panels addressed the potential of RWAs, with speakers deliberating on tokenization’s challenges and opportunities.

There was general agreement that a significant challenge for further execution of RWA tokenization is the scarcity of platforms capable of effectively funding and materializing tokenization efforts. Discussions underscored issues related to liquidity and the general unfamiliarity with tokenized digital assets, which present hurdles to the broader adoption of this transformative concept. However, speakers acknowledged that despite challenges, some infrastructure developed during the bull market (e.g. smart contract standards, wallets, Layer 2s) has created a foundation for further development in capital markets. With additional advancements, existing infrastructure could play a pivotal role in supporting more tokenized, sustainable, yield-bearing assets.

Panelists also emphasized that tokenization on a public blockchain offers revolutionary benefits, such as real-time settlement and reduced transaction costs – particularly advantageous for the international money and forex markets. Promising applications of asset tokenization, including the ability to use assets as collateral on an international scale and create programmable assets, were covered at length.

Many speakers were keen on exploring a broad spectrum of assets suitable for on-chain tokenization, including stablecoins backed by USD or alternative currencies, treasury and corporate debts, carbon credits, and other asset classes known for their stable or robust cash flows. Notably, the effectiveness of USD-backed stablecoins was cited as a promising precedent for the future of tokenization, as stablecoins like USDT and USDC have already secured substantial liquidity and commanded impressive trading volumes worldwide.

Counterparty risk emerged as a pivotal concern among institutions either involved in or contemplating entry into the crypto space. Speakers shared insight into institutions’ diligence process when evaluating counterparties like exchanges and custodians. 

Discussions at The Bridge highlighted the evolving dynamics of private institutions working with public blockchains. While efficiency has improved over time, risks remain, particularly with regard to smart contracts security and KYC compliance. Panelists explored credit risk within the crypto market, largely agreeing that it adds an additional layer of concern for institutions.  

The Bridge was held the day after a jury found Sam Bankman-Fried guilty of fraud, which reignited conversations about what the post-FTX crypto landscape would look like. Speakers remarked that post-FTX, diligence on custody solutions among institutions has become considerably more stringent. Also, access to balance sheets from counterparties has become easier than it was in the past, a change that underscores a broader movement within the industry toward minimizing single points of failure and enhancing security procedures.

Speakers agreed that it is imperative for crypto custody to meet the high standards required by institutional and regulatory frameworks. Striving for full compliance, institutions now insist on SOC2 Type II audits, FFIC standards, and advanced technological safeguards to ensure a balance between security and trading efficiency.

Amidst these developments, optimism surfaced across panels that post-FTX, the space will have fewer bad actors, which will foster a safer and more reliable trading environment for institutions.

Another theme at The Bridge was the need for enhanced infrastructure and regulatory frameworks, catering to the diverse requirements of different jurisdictions around the world. Speakers collectively agreed that fostering a more interconnected and compliant crypto ecosystem on a global scale is essential.

Speakers delved into key factors for bolstering the adoption of decentralized finance (DeFi), particularly the regulation of stablecoins. Panelists were in consensus around the transformative potential of policies that allow corporations to include crypto assets on their balance sheets, which would potentially represent a catalyst for mass utilization of DeFi. Additionally, the challenges surrounding public education on the value of crypto technology, with a focus on the importance of DeFi and effective Anti-Money Laundering (AML) compliance, was a point of emphasis.

Regulation was discussed in the context of striking a balance between regulatory measures and fostering innovation. Speakers highlighted the potential risks of overregulation, emphasizing that a measured approach is crucial to enable the creation of advanced and transformative technologies within the crypto space.

A number of panels explored the considerable judicial inconsistencies among U.S.-based regulatory entities, particularly between the Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC). The prevailing sentiment at The Bridge was that U.S. legislation tends to be more reactive than proactive, lagging behind technological advancements. Challenges emerge from the lack of clarity across regulatory bodies, particularly with regard to the complex and expensive risk assessment exercises for token listings. Simplifying processes and providing clearer guidelines would significantly alleviate the administrative burden and regulatory risk faced by companies in the crypto sector.

Notably discussed and praised at the conference was Coinbase's approach of an ‘affirmative defense’ in its dealings with the SEC. This approach is marked by compliance with existing regulations, and active participation in dialogues that will shape the future of crypto regulation. Several speakers contended that Coinbase’s approach is more than a legal strategy – it also emphasizes Coinbase’s commitment to clearer and more equitable regulation for the industry. Their stance sets a precedent for other companies in crypto, illustrating how proactive engagement with regulatory bodies can lead to positive outcomes.

Panelists at The Bridge commented on the transformations observed across the crypto market in recent years. Speakers argued that in the last bull market, a surge in investment and the proliferation of high-risk appetite capital drove unsustainable speculative activity on projects with little potential for short-term monetization. 

Conversely, many well-capitalized projects developed during the last cycle remain key players in the industry. Using both the positives and negatives from applications built in recent years, speakers contended that these learnings will guide the next generation of crypto applications and accelerate their development.

Addressing inefficiencies in slow trading infrastructure emerged as another crucial topic at the conference. Speakers expressed concern about sluggishness that leads to data delays, which is particularly detrimental for high-frequency trading and providing market liquidity. Many speakers agreed that as institutional demand grows, resolving these inefficiencies is essential for the smoother functioning of crypto markets.

An overarching goal for the industry is to foster a perceptual shift about public blockchains. With a focus on improving user interface and experience, concepts like on/off-ramping will likely become obsolete. Speakers envisioned an evolving landscape that aims to make user interactions with blockchain technology more intuitive and natural, thereby mitigating risks associated with the use of public blockchains and encouraging wider acceptance.

Panels at The Bridge explored the idea that blockchain technology, as a form of public ledger, could complement artificial intelligence. Speakers emphasized the unique features of blockchain technology, including artificial scarcity, traceability, and immutability, which can enhance the creation and curation of complex statistical models. Their vision holds promise, particularly in the context of offering a monetization path for creators prior to the inevitable integration of their intellectual property into large language models. However, it was acknowledged that this concept is still in the early stages of development and remains on the horizon.

Furthermore, the transformative impact of blockchain in the realm of securities was a focal point at the conference. Panelists highlighted how blockchains create unchangeable, transparent, and traceable records for real-world assets, including valuable metadata associated with assets and transactions. There was general agreement that the metadata associated with tokenized securities, specifically maintenance reports, proof of ownership, and a verifiable and traceable history, has the potential to mitigate financial disasters akin to the 2008 crisis. Further, speakers expressed optimism that immutable objects and their metadata will establish new efficiencies and increased clarity across the financial sector.

Institutional speakers, particularly those in the financial and technology sectors, actively discussed the development of business cases for producing and exchanging financial products on-chain. The utilization of shared test network environments has emerged as a key strategy for organizations to carry out and simulate trade activities without the risk of using actual funds. These test network environments serve as a valuable means for institutions to evaluate and quantify the potential efficiency gains of blockchain-based systems. Panelists suggested that by proving these concepts in test network environments, builders can mitigate many technical and operational risks before bringing their innovations to the market.

Although the industry has experienced considerable challenges since the highs of 2021, The Bridge was marked by a spirit of optimism about the future of crypto, among speakers and attendees alike. Speakers conveyed growing confidence that the space will continue to mature, and a belief that with regulatory clarity, and increased security and efficiency in infrastructure, institutional interest and involvement will grow.

The goal of The Bridge was to help reinstill trust within the crypto industry and facilitate the exchange of valuable insights among top-tier institutions. Across the entire event, speakers emphasized the imperative of doing things ‘the right way’ in a post-FTX world - learning from the industry’s prior missteps, and integrating blockchain’s transformative technology alongside what has worked in traditional finance to create a new economic paradigm. 

As we believe these dialogues are crucial for the ongoing evolution of the industry, we plan to host The Bridge on an annual basis. Each year, we will deliver programming that features industry leaders, addresses the most pressing topics, and continues to facilitate mutually beneficial collaboration across the space. We share our speakers’ optimism about the future of crypto, and we are excited to help grow institutional adoption that pushes the industry forward.

This report is for informational purposes only and is not investment or trading advice. The views and opinions expressed in this report are exclusively those of the author, and do not necessarily reflect the views or positions of The Tie Inc. The Author may be holding the cryptocurrencies or using the strategies mentioned in this report. You are fully responsible for any decisions you make; The Tie Inc. is not liable for any loss or damage caused by reliance on information provided. For investment advice, please consult a registered investment advisor.