The Future of Finance: Goldman’s McDermott on blockchain

Welcome to Financial Future, where Luck Ask celebrities at major companies about their work, how their companies fit into the crypto ecosystem, and what all this means for the way we use money.

Mathew McDermott is an executive director at Goldman bookwhere, after nine years at Morgan Stanleyhe has worked for more than 17 years and currently runs the company digital asset division.

In November, Goldman launched learning data, described as a “new framework for classifying digital assets” and McDermott said has generated “a lot of interest.” In a recent interview with Luck from London, he explains how blockchain and the technology behind it will have huge impacts not only on customers but also on the company itself, the custodian about 2.5 trillion dollars in property.

(This interview has been edited for length and clarity.)

When people ask, “What do you do?” and you say, “I’m at Goldman,” so what do you do at Goldman?

Well, globally, I head the digital asset business at Goldman Sachs. In the way I describe it, we seek to use underlying technology to change the way these assets are issued, traded, and then cared for post-trade—what are the components and the online technology? route that we use to seek to reconstruct the way financial markets work. So repo, stock, finance, mortgage, derivatives, repo of the day—it’s really just identifying trade opportunities using underlying technologies.

You were at Goldman for about 12 years before starting to run the digital asset business. What drew you to the opportunity?

For me, that is the positive impact this technology can have on many of the markets that have relied on the technology for many years, in a really profound way, not only for Goldman but also for the company. with a larger market. So when I was asked to take over the business and given the ability to create a strategy for digital assets, it was unbelievably exciting. Naturally, I saw an important opportunity and more than that, it made me even more interested in the sector after following these markets separately more widely from a personal perspective. So yeah, it was just a very exciting time.

Your CEO likes to say, “Goldman is not a bank, we are a technology company.” So in many ways, gaining this foothold is just the next logical step, right?

When you look at certain markets, I think there’s the potential to try and redefine how they work, that can really create a revenue opportunity and can really make things work. more efficiency, less risk—you know, that’s pretty tempting.

The situation in the US is bad from a regulatory point of view. Have miCA mode in Europe, and Dubai, Singapore and Hong Kong will also appear. Is cryptocurrency really viable if it doesn’t have a home in the US?

I can’t say for a long time. If nothing else, the cryptocurrency has proven itself to be extremely resilient, based on what it has faced in terms of challenges over its entire life cycle, which is still relatively short. But I think about using the underlying technology, which is mostly for me during the day—I can’t trade crypto because we don’t keep the tokens on our balance sheet—and I am extremely Excited about the breadth of financial markets is really attracted to this space. Buyer Seller.

If you think about all the major asset managers, most people have a digital asset strategy. I think the US is clearly taking a slightly different approach at the moment, but I’m still optimistic that they will pivot at some point.

It’s been about six months since debut learning data. How did that work out? Can you share some highlights?

For those less familiar, it’s a digital asset classification that we have developed with MSCI And Coin figures, and it accomplished everything we expected—we got a lot of interest. Now, we’re actually working with a lot of different customers in terms of thinking through potential metrics, licenses for people to actually use the data.

One of the main motivations for us to create this was to give people the granularity to understand different tokens and, you know, search the top 150 to 200 tokens, at any given time. any time, to allow them to really do their due diligence as they think about the investment. that they want to invest in—what kind of smart contract, what token should they consider, or should they consider a stable coin.

When it comes to maximizing these efficiencies, how much is for the client and how much is for Goldman? How does using blockchain and similar technology make your work better?

I think that’s a really good question. We’ve been spending a lot of time talking lately, in closed sessions with regulators and central banks and so on, but I think commercially, sometimes that gets people a bit lost. loose. But there are two real core areas: first, the tokenization and digitization of the lifecycle of various assets. It’s about creating efficiency right from the start—from issuance to post-transaction—and we see a tremendous value opportunity there as it manifests itself at scale.

The second area, the kind of answer to your question, is the mobility of collateral. A lot of the systems we use are probably as old as I am and have inefficiencies in them. In the process of moving collateral from one custodian to another, you cannot be exactly what you want in terms of liquidity, which creates inefficiencies. There are certain risk profiles and transactions that you can fully convert through use DLT because of that precision, that definitiveness.

For many people, the crypto story is like a lone wolf’s point of view—everything is decentralized—but I see more and more TRAFI companies figuring out how to implement the technology—and quickly. than. Is that a fair generalization? Or is it still a bit early to say that the big boys will win again?

Ideologically, organizations that have looked at this technology are using it for different purposes. When you think about the options you have, about using platform technologyyou have privacy, ostensibly a glorified database, you have a public right, and then you have a permission not to.

There are people — even journalists, naturally — perhaps very focused on just opening up and creating a more democratized kind of market. But I think we’ve seen what happens when there’s no regulation—people behave in their own way that’s not appropriate for a multi-billion dollar market. I firmly believe that is intuition. If you have laid the groundwork and showcased how this technology can be extremely positive for people because it can reduce costs, then you can use key resources more efficiently and you can actually create a decentralized market.

Currently, US banks are usually focused on private blockchains. In customer discussions, that tends to be where they want to play because control, privacy, security, KYC, all the things you would expect.

I think as people become more familiar with the technology, they will see the value it brings. Web3 is all about personal empowerment and I truly believe that one of the biggest beneficiaries of this technology will be home office and property management customers, because they will more access to investment opportunities. There will be more liquidity in the market as you will start to see different markets emerge.

As public blockchains improve—there may be a better way to put it, because they mature—and people get more comfortable with them, opportunities will present themselves. I think, maybe, a couple of years from now, but I think that’s how it really has to evolve, for regulators and institutions to be completely comfortable with it.

When you say a few years, do you mean two or five or 10? And is there a milestone, an important point before the next big point?

I don’t think there’s going to be a definitive line in the sand where we hit and suddenly everyone opens up. But the DeFi market continues to grow. There is some impressive technology in some of these liquidity protocols—and more. That could add an interesting dimension to the market. Commercially, it could show that the technology is transformative. People thrive and can create the kind of power that makes regulators feel comfortable. But that’s two years from now? Are not. Is there another five years? Ability.

Are there too many blockchains out there? Would the industry be better off just focusing more on Ethereum and Bitcoin, and one or two others, instead of everyone starting their own projects and issuing tokens?

I don’t have a strong opinion either. Ethereum and Bitcoin have proven themselves to be remarkably resilient. There are some other very interesting apps that have unique features, but I think, over time, they will probably merge—but it’s hard to say what those will be. They will probably merge around some of them, where there will be obvious interoperability between all of them. I don’t think there will be dozens and dozens of them—it will probably be a small group.

What does this mean for the future of the financial industry?

I would say that a huge amount of trading in the financial markets will be on the blockchain—I mean keep doing your job. [Laughs] But I do believe that blockchain technology will have a profound impact—maybe not necessarily across every type of market, but across large swaths of the globe because of its extremely positive features, efficiency, and revenue opportunities. its pole.

I look back on the last three years I’ve been in this market: We went from a place where there were no regulations – people didn’t even care to talk about it – to really getting regulations, really get real clarity. If we see the same rate of change as three years ago, in three years’ time, I think it’s going to be a profoundly different financial system.


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