How Digital Assets Are Rewiring Financial Markets – Transcript

00:00Welcome to Thoughts on the Market. I'm Felix Stratman, Global Digital Asset Strategist with Morgan Stanley Research. >> And I'm Amy Oldenburg, Head of Digital Asset Strategy. >> Today, we're looking beyond crypto prices to explore how digital assets could transform the way financial markets operate.

00:16It's Thursday, October 29th at 2:00 p.m. in London. >> And 10:00 a.m. in New York. >> So, we're used to being able to send money, shop, and access information anytime, anywhere online, right? But, much of the financial system still operates on infrastructure built decades ago with limited trading hours and transactions that can take days to settle. Digital assets could fundamentally change that. Amy, your work focuses on how financial institutions put digital asset

00:43technology to use. When people hear digital assets, they still mainly think of Bitcoin, but what bigger shift in financial infrastructure are they missing? >> One thing I would focus on is while Bitcoin may have showcased the technology for us, there's a much bigger innovation story here that we need to focus on. And this is really what's going to create the future of efficiencies and new products for our clients. We've seen many other industries get disrupted by innovation and technology, and now it's coming for financial services, and we're really

01:11dealing with this in many different ways today. >> Yeah, and I I guess as that infrastructure changes, so could the competitive landscape, right? So, which parts of the existing financial system stand to benefit the most, um, and which could face the greatest disruption from your perspective?

01:26>> Yeah, I think it's good to look at some of the different points we've seen in history. Even if we think about some of the parallels to the internet era, while many of those early activities were simpler in terms of what happened, just digitizing company information for the first time, we're also seeing that simpler product design happening within digital assets. We're tokenizing equities and we're tokenizing treasuries, and that's simply to get them in digital form. It's really the

01:52future of programmability really embedded in some of these products that will be the powerful force that we'll see in the future. So, I think areas where you have high friction and even a heavier administrative burden, that's areas where we may see some of the biggest transformations happen in the space.

02:08>> So, Felix, I'm looking at the sector from the strategy side. Curious from your research perspective, where are you seeing the clearest signs of tokenization moving from concept to real market activity today? >> So, I mean, look, we're we are early in the tokenization game, you know, tokenized real-world assets are about 30 to 40 billion today, but they're growing quickly. That number was essentially nothing just a couple of years ago. And recently, we put out a forecast saying

02:34we expect them to reach about 2.3 trillion by 2030. What's driving that? A couple things I would say. Really, it's comes down to where traditional financial infrastructure has the most friction. One of those areas being collateral management and getting your collateral where it needs to go, whether that be 24/7 or internationally, this is a big opportunity for tokenized assets.

02:55And we're seeing growing interest in and demand for related products like tokenized money market funds or or government securities, which are one of the fastest growing areas of tokenization. And again, these can potentially move more easily between institutions or be used as collateral.

03:10And this is especially important, I would say, as markets move towards 24/7, right? One thing related to that where we're seeing increasing activity is tokenized stocks. You know, I would say they're not necessarily representing a more efficient state of the equity market yet, but they're an important step towards testing and demonstrating you know, the benefits of tokenized assets in global distribution and also enhanced utility, right? And then elsewhere, I think we need to look at digital money as well. Um so, we've talked about the assets, but the cash

03:38side of the equation is equally as important, and that's also starting to operate at a larger scale. Still largely crypto-focused, but stablecoins are increasingly being used in real payment activity, right? So, we see that growing and approaching 100 billion or so a month right now. And yeah, maybe changing gears here just a bit, this progress we've been discussing is happening against a backdrop of a bit of regulatory uncertainty, right? The Clarity Act hasn't advanced as proponents had hoped. How do

04:05institutions balance that uncertainty against the need to keep investing in new infrastructure? >> Felix, I have to say regulatory topics have been just the theme of 2026 this year. It's not only Clarity Act you had highlighted digital money, which is also wrapped up in the Genius Act, which will go in force in January of 2027, and then we've seen innovation exemptions also come to market in the last few weeks.

04:31You know, the future requires new tech, and how we're focused on this, we're not picking blockchain winners or even standards at this stage. We're really focused on building out the core infrastructures. Because beyond regulation, there are certain non-negotiables that we just have to be ready for for a future of 24/7 trading, real-time data, and the world ahead of us, which all of the regulations are really pointing towards a future of.

04:57And Felix, I'll turn it back on you as we talk about regulatory uncertainty. It doesn't necessarily affect every part of the market the same way. Where do you think it could hold back adoption, and where do you see progress that may continue even under the existing frameworks?

05:12>> Yeah, so look, Clarity specifically was was primarily a crypto market infrastructure bill, right? And it could have provided a framework for how crypto trading is regulated, and also what regulations are relevant to decentralized financial applications.

05:25But really, that's only one part of this digital asset theme, right? Tokenization, for example, you know, that can continue to progress because tokenizing an existing security that that doesn't fundamentally change what that security is, right? A stock remains a stock, a security is a security, even if ownership is recorded on a blockchain. So, there's already scope to develop, you know, things like tokenized funds, payment infrastructure, and institutional settlement under existing legal frameworks. I would say that, you know,

05:53firms are still looking for clarification from regulators, but that's rather than wholesale new legislation being necessary. And look, to that point, we've already seen the SEC and CFTC very engaged in proposing rules and guidance post clarity. And then you also have the genius act and the associated rulemaking from the relevant regulators. And that's paving a path for stablecoin usage and adoption.

06:14So, look, yes, progress can definitely continue particularly for the financial use cases of digital asset technology even without comprehensive legislation. But, you know, maybe let's think about what that means in practice, right? Even with the regulatory uncertainty, firms are still making decisions about when to modernize. So, Amy, from your perspective, what can previous shifts in financial technology, like electronic trading maybe, teach us about the risks of waiting too long to invest?

06:41>> Felix, I love your example of electronic trading and there's so many periods in history where we lived through some of these transformations and impacts to financial services where we can take some of the lessons learned and really make sure we keep those in mind. But, I think there's another one that we really need to also keep in mind and that's really on the execution and managing the internal culture and workforce shifts that we'll also see this innovation that takes place. These are critical because, you know, with many of these eras of

07:10transformation, you don't just flip a light switch to turn much of this on. We're living through many years of transformation and I see digital assets being a multi-year transformation just as we saw some of those other periods in history take many years to actually deploy over time.

07:26>> Yeah, that modernization kind of brings us to another important theme, the convergence of traditional finance and digital assets. What does that actually mean in practice? Are we heading toward two financial systems operating side by side or one increasingly integrated system?

07:41>> Oh, yeah, that's a really tough question and I think one of the things we always love to try to determine a black and white outcome, but I think that one of the things that's pretty clear to us today is that for a number of years we'll be living in and supporting a hybrid world as we work through the transformation that I even just talked about earlier. There's definitely operational efficiencies and strong product design that we really need to

08:07stay focused on and that will be hard for our clients and even our firms to ignore going forward. So, I think just like AI is going to impact our future, we have to think about how this integration comes together. And I think we may see not only integration or a unified system going forward, but we may even see financial services products distributed in different ways. And Felix, I'm going to turn it back over to you. What is your research so in terms

08:35of the clearest evidence for traditional and digital finance coming together? Do you see established financial institutions adopting blockchain faster than maybe many people realize? >> Yeah, absolutely. I mean, we are early in the adoption of the technology, but the momentum is very much real, right? I looked through press releases from global financial companies and I found that roughly a quarter by count and and some 60% by market cap, you know, had announced, piloted, or or launched

09:01digital asset initiatives. So, so institutions are seriously behind this. And then you also see opportunity in in things like 24/7 follow the sun type of treasury management, you know, that digital money enables. And that could be highly relevant, you know, for corporate treasuries. So, yeah, I think absolutely firms are adopting this technology and I think convergence is increasingly what we're seeing because these products are being issued on public blockchains and firms are experimenting how to

09:28incorporate them into decentralized financial protocols. And yeah, I mean, it's it's very much a case of financial institutions using the technology while crypto-native platforms are trying to figure out how to better cater towards regulatory compliance and privacy needs, right? And while it's early, look, it it's not like the early days of crypto entirely, right? Which was very much trying to replace the financial system.

09:51Now, I think we're increasingly seeing this convergence with the existing system to make it more efficient. But maybe let's look ahead now. What needs to happen before digital assets become an everyday part of how financial markets operate?

10:05>> To your point that you brought up earlier on building out blockchains, the entire industry right now is really trying to invest and build this infrastructure, but it's not only the infrastructure, it's redesigning workflows, it's upgrading policies, looking at the governance impacts of this future. And and that is a lot of work for many of our firms to take on, especially with so many competing

10:30innovation topics in the news right now. It may slow some of that adoption in the near term. I think what we'll see is suddenly as much of this work is done and it starts to come to market, slowly we will transition from not talking about the future of finance, but really that this will just become finance. And that's a path that we feel we're clearly on at this stage.

10:52>> Well, look Amy, I know we could sit here talking about this for hours, but I think that'll wrap us up for today. Amy, thanks very much for joining me. >> Thanks, Felix. >> And thanks for listening. If you enjoy Thoughts on the Market, please leave us a review wherever you listen and share the podcast with a friend or colleague today.