Chainlink Co-Founder: Why Institutions Will 100x The Crypto Industry (And What Comes Next...)

People ask me, "Hey, Sergey, what are you up to?" And I would say, "I'm working on Bitcoin stuff." And they would say, "The drug thing."

>> We all remember who screwed us over and who didn't let us cover our margin and who did, especially year after year after year.

>> Those two days add up.

>> Today's guest is Sergey Nazrov, co-founder of Chainlink, the decentralized oracle network powering smart contracts across web 3. Since its

launch, Chainlink has become the industry standard for connecting blockchains to real world data, securing trillions [music] in onchain value. From

price feeds to proof of reserve and cross-chain interoperability, [music] Sergey's work underpins the infrastructure of decentralized finance.

Sergey Nazrov, the visionary linking crypto to the real world. When everyone

thinks that you're a drug dealer because you work on Bitcoin.

>> Welcome back to [music] the rule.

>> This is your home to learn from the biggest guests, the brightest minds at the tip of innovation. Our goal is to help spread the collective knowledge of everyone in our community. We are

breaking crypto out of its echo chamber and taking it to the real world.

>> Sit back, relax, and enjoy it.

>> All right, guys. Welcome back to SmartCon Day two here in New York City.

We have the Chainlink CEO and founder Sergey with us. What an event. Day two.

What are your what are some of your reflections from day one? Uh we have JP Morgan, DTCC. We've got some of the

Morgan, DTCC. We've got some of the largest financial institutions in the world here at this event. Sergey, how

are you feeling about it all? I mean I'm feeling very positive. So chain link already powers the majority of DeFi globally and on top chains like Ethereum uh over 80% of all DeFi. So the chain

link standard and the reliability that it provides has already kind of made DeFi grow significantly and made it made it a reliable resource for you know

capital to flow into. Now what I I think we're doing here at this conference is we're we're continuing our work with the DeFi community. But to your point about

DeFi community. But to your point about JP Morgan and the DTCC and the UBS and and a bunch of other, you know, of our top users, we're starting the process

now of making chain link ubiquitous in the institutional world. And I I think the thing people don't yet fully understand is that if there's a single

standard powering the DeFi world and the institutional world, then it actually really benefits the DeFi world and our industry as a whole because it makes the movement of capital from the

institutional side into DeFi much more seamless and efficient and lowcost and easy to do. So that's really kind of the third step in what chain link seeks to do. You know the first step is enabling

do. You know the first step is enabling DeFi and and our industry to build advanced smart contracts. The second

step is now institutional smart contracts and the third step is the merging of those two worlds into into a single efficient global financial system. So I

think the fact that we have these you know the largest really financial institutions and the most advanced ones from a blockchain point of view you know working with us here at the conference speaking about our work talking about

going to the next stage in our work in many cases um some some of them already on production I think that's very very positive. Yeah, absolutely. You've

positive. Yeah, absolutely. You've

already executed some incredible achievements along with both the DeFi world and the financial world. UBS

executed a live tokenized fund transaction via chain link. Uh and

that's through your digital transfer agent. Can you describe what this

agent. Can you describe what this digital transfer agent does for the world of finance offchain and and speak to the ubiquity that you mentioned how this can bridge the gap between off-chain and onchain?

>> Sure. So a transfer agent is something from the traditional financial world that effectively eliminates double spends in the traditional world. So if I

want to give you equity equity ownership of some stock, someone needs to check that I have the equity be and and then they'll give it to you. So I'll give it to them, they'll double check, and then

they'll give it to you. So the transfer agent is responsible for these transfers and they are essentially the way to stop double spends. They've been around for

double spends. They've been around for decades. Um, and it's it's a part of the

decades. Um, and it's it's a part of the system that essentially blockchains kind of end up doing on their own because we can all tell what everyone has. But

there's a lot of laws and requirements on the traditional side that mean that transfer agency has to exist and has to be part of transactions. So instead of just kind of waiting for the laws to

change, what the chain community has done is is we've generated smart contracts that successfully replicate transfer agency for tokenized things.

And then we've turned that into an open standard, the DTA, the digital transfer agent standard. That standard is powered

agent standard. That standard is powered by CR, the chain link runtime environment, and some of the navl link, the data oracles that provide data into the transfer agent. And then uh UBS,

which is the largest bank in in Switzerland, one of the largest banks in the world, has a tokenization team that's now rapidly growing. They've been

working with us for a number of years.

And now we've gone to production with them using the digital transfer agent because the digital transfer agent unblocked them from doing these transactions because it solved this um

essentially legal problem right of I need to do transfer agency in I need a transfer agent to do transfer agency in order for my fund tokenization transaction to happen and you know they don't want to build that there's really

no one else building it in an open reliable way that chain link has built it and so we built it you know we built it We made it open, we gave it to them and uh we're seeing a lot of ad adoption

of it. But it's it's really just one of

of it. But it's it's really just one of one of the many building blocks that chain link is providing to the institutional world. And then as UBS and

institutional world. And then as UBS and others are on the digital transfer agency standard and they're kind of utilizing chain link for these fund tokenization movements and operations,

>> you you really get to a place where you have a larger and larger group of institutional assets that can then flow into DeFi. And so on the other end,

into DeFi. And so on the other end, we're we're trying to work more and more with DeFi to get them uh ready to accept those assets. But once again, under the

those assets. But once again, under the conditions of the institution because if they can't meet the conditions of the institution, you know, identity

conditions, uh anti-moneyaundering conditions, uh transfer agency conditions, they won't be able to accept the assets. They won't be able to

the assets. They won't be able to participate in in that universe of assets. So that's uh this is a step in

assets. So that's uh this is a step in that direction in fa in in favor of DeFi. It looks like a big institutional

DeFi. It looks like a big institutional step and it is a big institutional step.

There's a lot of institutions that are going to use the transfer agent, I think, but it also builds um kind of a universe of assets that'll be easy for the DeFi users of chain link to gain

access to.

>> And I think it's really important to understand this institutional smart contract idea, right? Because I think a lot of us in the space who've been around have understand what a smart contract is, but don't understand the

necessary complexities required to actually make a smart contract that will work to kind of bridge this gap. Right?

It's not just some code on on Ethereum mainet as a smart contract. It's it's

oracles. It's interoperability. It's

compliance. It's privacy. It's security.

And so I know that with CR and with your uh confidential uh compute, you're really focused on kind of building this like stack, you know, in full. Um you

know, you mentioned that the central bank of Brazil has been uh you know, you've just announced a collaboration with them. Perhaps you could speak on

with them. Perhaps you could speak on that in the lens of of the understanding of an institutional smart contract.

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>> Sure. Sure. So so smart contracts I I've been working on them since basically they they came into any kind of existence even before Ethereum. And um

initially smart contracts were very simple. They were about essentially

simple. They were about essentially token ledgers or decentralized exchanges or voting contracts on a single chains.

So you didn't need data. you didn't need bridging. Then you saw the appearance of

bridging. Then you saw the appearance of DeFi and then the multi-chain world which means you needed uh data oracles and bridging oracles which chain link is leading provider of of of those types of

oracles for for different categories of transactions and you end up in a world where um for me the definition of a smart contract expanded to include all the code on all

the different chains and the oracles. So

that's what we what's that's what we define as a smart contract. It's not

just the code on the first chain. It's

the code on all the chains and all the oracle networks powering all that code.

That's what a smart contract is. And so

an institutional smart contract would be a multitude of those different contracts. For example, the transfer

contracts. For example, the transfer agency contract as well as the NA navl link the data oracle to give the valuation of the fund to the transfer agent. So it can strike the value of the

agent. So it can strike the value of the fund and it can decide how many shares to give you for the money you send it.

But then you'll also have a bunch of kind of cross-chain contracts to get the fund to other places. So now the bridging oracles and the contracts on

the other chains are also representative of that contract and then you have uh AMLKYC identity oracles for compliance

so that you can send the fund somewhere.

So now the contract also has identity oracles. So when I say when we say

oracles. So when I say when we say institutional smart contracts, what we really mean is really advanced and complex contracts composed of many different um chains and their contracts

as well as the many different oracles that have to work with those contracts with the central bank of Brazil and the central bank of Hong Kong and in tear the the largest bank in Brazil. that was

uh actually really interesting because it was a transaction between two jurisdictions which with two sets of laws that used CCIP for their crosschain

and the sending of uh two CBDC's the e-hong dollar and the drex the uh Brazilian realale from the Brazilian central bank and then it also used CRA

to synchronize with all kinds of other systems around things called electronic bills of lighting and uh Swift messages because you know the other thing that oracles uh do and

are going to be respons and are responsible for is the synchronization of all kinds of real world systems back with the contracts. And so this transaction with the central banks was

about trade flows. It was a transaction where soybeans from Brazil are being sold to Hong Kong basically. And um you you had to do a lot of other things in a trade

flow that had to do with bills of lighting, accounting, all these things.

And so the chain link runtime environment ran a workflow to do that in addition to the crosschain.

Um and so the institutional smart contract in that case is the contracts on the different chains of the central banks and the commercial bank. It's also

the oracles providing the data and the identity and all the other information.

And it's also the chain link runtime environment workflow that's synchronizing the bill of lighting and all the other activities. So that's an institutional smart contract in the

sense that it's uh well it's doing institutional things and it's very complex. It has a lot of different parts

complex. It has a lot of different parts and a lot of different pieces on multiple chains. It speaks to the

multiple chains. It speaks to the reliability that you had mentioned earlier that not only are DeFi systems relying on this technology. We you

mentioned or we we announced Lido partnering with chain link CCIP uh for wrap state ETH that was announced today.

It's also the institutional partners in the financial world in Wall Street the largest names in finance and central banks that are also relying on this technology. Um, recently, a couple weeks

technology. Um, recently, a couple weeks ago, AWS pretty much broke half the internet, but chain link continued to persist, continued to to stay online and

continue to facilitate transactions.

What is it about chain link that makes it so robust and so resilient against some of the things that even AWS falls to? How does chain link stand up in in

to? How does chain link stand up in in the face of that?

>> So, it's decentralized and the system has a lot of backups. Um a lot of the other I think most all the other bridges went down from AWS for multiple hours.

CCIP didn't go down. Uh the data oracles didn't go down. A lot of other types of data oracles or we know many people's internal internally built data oracles went down which which stopped their

protocols created issues created mispricing. The inability to move around

mispricing. The inability to move around assets across chains because AWS went down I think created a lot of issues for people because and imagine if if the AWS outage happens during a crypto market

volatility event. You have to move

volatility event. You have to move things but you can't move things because the the bridging provider you you use keeps saying the word decentralized or reliable but then they're down for hours

when when it actually matters. And so

what chain link is is actually built for and and what our what our top priority is in the community and in how we think about building things really is this reliability and security.

And the way to think about it really when when you build reliable systems is that you're not building the system for the 363 days of the year when everything is smooth.

>> Exactly. Yeah. So anybody almost anybody can build a system that does something when the world is smooth when when when you know market prices are not highly

volatile across all exchanges right which is why chain link is considered the global price in DeFi and why it secures approximately 70% globally and

over 80% on chains like Ethereum. It's

because it's not because of the 363 days when everything's okay. is because the two days where everything turns upside down and world goes crazy. Um

that's really what what chain link is is built to to try and approach in the best possible way to with with the most thoughtful approaches and that's what

>> really high-end protocols like a appreciate. So CCIP is the only

appreciate. So CCIP is the only crosschain system of a now for Lido it's the crosschain system of Lido.

Generally speaking, what we find is that as protocols start to hold more value and they start to be responsible for more people's money, their sensitivity

to reliability and security goes up. So,

anybody can go build some centralized service, make a website, call it decentralized, you know, mismanage the security of their keys and and people

don't notice because whatever. And it'll

work 363 days out of the year. But once

you secure tens of billions of dollars like A like Lido, like these financial institutions, you also think about the two days of the year of course and from what I can tell

right now from what I know of the other systems and AWS situations I think is clear proof of this clear immediate relevant kind of recent proof is I don't

see another system right now that can deliver data crosschain connectivity identity the and all of these kind of oracles at all, much less deliver them

in a reliable way.

And uh like for example, a chain link right now is the only system of of its type that's ISO and sock compliant. So

ISO and sock are these global standards for reliability and security where you have to take a lot of internal steps.

You have to get an audit from um an auditor like Deoid or Ernston Young and they have to review how all the processes work in your system. they have

to review, you know, key management processes, security processes, data processes. Chainlink right now is the

processes. Chainlink right now is the only system of its type that has that certification, which I can tell you to the institutions is useful. Um, in fact, we actually surpass that certification

by quite a bit is is is the actual reality of it. Um, so I think people and and and by the way, people don't fully value this the 363 days.

>> No. Right.

>> Because everybody kind of looks the same. Oh, this thing over here says it's

same. Oh, this thing over here says it's decentralized on the website and they were able to do an airdrop to juice their numbers, you know, and so it looks like they have volume. What a what a success this thing is. Oh, and they

mismanaged their keys and they and they day trade on their keys. Oh, that

doesn't matter. Look at their volume.

It's and it says decentralized on the website. But you know the two days when

website. But you know the two days when it actually matters >> as long as chain link is the thing that works >> I think we're we're doing the right

thing instead of um you know instead of doing whatever the else some of these people are doing >> especially year after year after year after year two days add up.

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>> Yeah, they are the defining moments of the industry.

>> Yeah, that's right.

>> And we all remember who screwed us over and who didn't let us cover our margin and who did and institutions remember that. Funds remember that. Liquid funds

that. Funds remember that. Liquid funds

remember that. So, it's okay. We just

have a couple minutes left. We had Zach on yesterday and we asked him kind of like, you know, what do you think we should ask Sergey? And he said, you guys

ought to ask Sergey why personally he still loves coming in and and and working on chain link day in and day out. It's been a 10-year run now. It's

out. It's been a 10-year run now. It's

been some from the inception of smart contracts. It feels like we're at that

contracts. It feels like we're at that >> that point in the industry where it's all becoming I mean, look around. It's

it's it's happening. What is it that still gets you out of bed in the morning? What what are you so personally

morning? What what are you so personally excited about with chain link right now?

>> So, I think it's it's an amazing opportunity. Uh basically, there's not

opportunity. Uh basically, there's not going to be many chances for anyone and I and I feel very lucky in this sense to work on something that can define uh how the world works, >> right?

>> And chain link really is a set of standards for how transactions work. So

how data works on all the chains, how crosschain works on all the chains in a reliable way, how identity works on all the chains, how synchronization between

chains and and existing systems works.

And to me being the the person who is involved with a with another smart group, other smart people, a large group of smart people that can create that type of standard the way Linux is a

standard or HTTPS is a standard or TCP IP is a standard. I don't think that comes along more than once in someone's

life and and even if it comes along once it's extremely extremely good fortune in my opinion if you can be involved in building something like that

>> and so I'm very lucky to be involved in in building something that right now is is on the trajectory to be something to be a standard right to be a truly global

standard it is already uh the global standard in DeFi for data and for other other key operations. Um now the challenge is as our industry goes from

being a niche industry to powering global finance can we take the chain link standard and take it beyond DeFi to be the institutional standard and then

when DeFi and the institutional world merge into one financial system can that happen over the chain link standard right so that's kind of the um the

challenge that we're now now now now trying to do we're trying continue to grow, continue to make DeFi succeed, make sure that you know folks like Lido have secure bridges, make sure

A and others have reliable data, make sure they have all the all the key building blocks they need to build the next iteration of what they want to build, provide all the building blocks

that institutions need. And then and then this the really simple theory is that if we can do these two really hard things of powering DeFi and powering institutional smart contracts then the

third step of getting them to interoperate with each other should be should be actually natural and organic right and we are already seeing some of that because some

of the users we have on the institutional side and the many users we have on the DeFi side are already finding it pretty easy to interoperate with each other >> because yeah which is yeah

>> I mean you're doing it for all of us here I mean it there's obviously it's a winner takes most market here for oracles for for data for smart contracts but I mean >> if you guys keep winning our entire

space wins >> I think so >> and I think that's that is a message that you've gotten across very well >> yeah so I'm also a huge fan of our space that's another another reason I've

>> we know I've been I've been in this industry for over 15 approximately 15 years now. And um I got to tell you if

years now. And um I got to tell you if if you can believe in this industry when when when everyone thinks that you're a drug dealer because you you work on Bitcoin. Like when I started blockchain

Bitcoin. Like when I started blockchain as an industry didn't exist, it was only Bitcoin. And when you would tell Bitcoin

Bitcoin. And when you would tell Bitcoin to people, the only associated news story was Silk Road. So when I would people ask me, "Hey Sergey, what are you up to?" And I would say, "I'm working on

up to?" And I would say, "I'm working on Bitcoin stuff." And they would say, "The

Bitcoin stuff." And they would say, "The drug thing."

drug thing." >> Right? So if you can work on something

>> Right? So if you can work on something when when that's you know that's what people think you're doing you can definitely work on it when all the world's largest financial institutions want to want to work with you

>> are in the room with us >> so conviction grow stronger surrogate Naz thank you so much for coming on pleasure the chain link standards becoming ubiquitous thank you so much >> thank you very much thanks for being at

the conference and thanks for having fantastic love to have you again soon yeah >> my pleasure cheers see you again soon great conference smart