Borrowing With Bitcoin, Paying With AI: Money’s Next Big Shift | Benefit Street Partners Anant Kuma

Anant Kumar (0:00)

I do think, agentic payments using digital assets are going to become a bigger part of commerce. That may take a little while, but it's going to come. But just having currency that's programmable unlocks a whole new set of capabilities with AI. We definitely have some people who think, crypto is all a scam, and every time you bring it up, they're like, what about Sam Bankman Fried? And yes, they'll have bad actors, and you'll have price volatility. Volatility is good. It helps you find places to deploy capital, and get big returns, so I'd say embrace the volatility, embrace change, just prepare, because this wave is coming. We know that the big exchanges are working on tokenizing securities and products. Work on getting the infrastructure in place to be able to transact in this world where many, many assets are going to be tokenized. So focus on security, focus on the infrastructure, and just lay the groundwork for this coming wave of tokenization that's going to impact all asset classes.

Tony Clark (0:54)

This is the London Fintech Podcast, bringing you practical insights and approaches, stories and inspiration from the innovators who are building the new world of financial services.

Most of what you hear about blockchain in finance is about things that haven't happened yet. Meanwhile, some of it has quietly been running for years. My guest today argues that there's an order to institutional adoption, collateral first, then settlement, then everything else. And he isn't theorizing because his firm has actually done a deal on chain. This conversation is timely, not least because the DTCC's full tokenization service launches in October. Swift's shared ledger went live for initial use in July with 17 bank pilots. The Bank of England has committed to a synchronization service for 28, and is working with 16 firms in the digital security sandbox. There were over 140 blockchain firms at Money2020 Europe this year. So I think it's safe to say the industry pivot to blockchain infrastructure is in full swing.

Anant Kumar is Global Investment Strategist and Head of US Credit Research at Benefit Street Partners, Franklin Templeton's private credit business managing around 90 billion in assets. By the end of this conversation, you'll know what's live, what's being piloted, and what's still a pitch. Hi, Anant, and welcome.

Anant Kumar (2:10)

Hi, Tony. Great to join you.

Tony Clark (2:12)

You said there's an order to all this, collateral first, then settlement, then everything else. Walk me through how you arrived at it.

Anant Kumar (2:21)

What's driving this right now really is, there's a lack of regulatory clarity in the US.

As we record this on September 15th, the Clarity Act is going to go before the Senate for approval, and there's a low chance it gets approved. But you still have the SEC and the CTFC working on drafting rules around this. So as market participants look at this space, they don't have the regulatory clarity on completely rewiring the systems. So before they go down that path, I think the low-hanging fruit is the collateral layer and the settlement layer. The collateral layer is interesting because when you think about blockchain-based assets, the collateral is almost designed to be the perfect collateral. So for example, if I have Bitcoin as my collateral and I borrow against it, that Bitcoin is, there's a clear title to it, there's ownership of that. It can be transferred instantly and I don't have to go and perfect liens on it. And you know, it's, there's a daily liquid market that contrasts with other kinds of collateral in the traditional asset-backed lending space.

If I had to go, suppose I lend to a company that makes MRI machines and I lend against the MRI machine, which is a big piece of equipment. If I have to go seize that MRI machine, there's a cost associated with actually going and picking up the machine and bringing it over. If I have to find the value of that machine, then there's not that liquid a market for those machines. There's, you know, it's not like there's a Facebook marketplace for MRI machines. There is some liquidity, but it's not as transparent. And finally, you know, I have to have liens on that. I have all the legal documentation.

Bitcoin, for example, or it could be any other digital token, removes all of that because of those elements of clear title, a liquid market, and instant transferability. So that's why I think collateral is something that can happen without too much regulation and the regulatory framework around it, which is why I think we're already seeing that digital asset backlending is a big thing. The second layer is settlement. Now that's really solving a big problem we have. So I work at traditional finance for the most part, and we trade leverage loans. Now leverage loans, some of your viewers in this may be familiar with, are loans that are syndicated amongst, say, 40 lenders. A bank, such as JP Morgan or Goldman Sachs, arranges it, and then you trade with those 40 or 50 other lenders. Now what happens is, if I sell a loan to another counterparty, for that loan to settle, it takes, and you might be shocked to hear this, two weeks. I mean, it looks like we're living in the era of fax machines at this point. You call someone up on your counterparty, they close the loan, and it is a very painful process.