Digital Assets – Removing the Intermediary

By Jeff Gearhart and Buddy Doyle

Water droplets resting on a green leaf

We’ve talked about cryptocurrencies and Stable coins, which of course are built on blockchain or distributed ledger technology. That technology means changes are coming on the back end of the industry, including the potential removal of transaction intermediaries.

In this episode, Oyster’s Jeff Gearhart and Buddy Doyle continue their conversation, this time around what the removal of transaction intermediaries means, who it impacts and what we are already seeing in the industry.


Transcript provided by Temi transcript services

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Hi, and welcome to part three of our podcast series on Cryptocurrencies and Digital Assets: The Wheels are Turning. Are You Up to Date?  We’ve talked about cryptocurrencies and stable coins, which of course are built on blockchain or distributed ledger technology. That technology means changes are coming to the back end of the industry, including the removal of transaction intermediaries.   In this episode, Oysters, Jeff Gearhart, and Buddy Doyle continue their conversation. This time around what the removal of transaction intermediaries means, who it impacts and what we’re already seeing in the industry. If you like what you hear today, follow us on whatever podcast platform you listen to. Let’s get started.

Jeff Gearhart:  The banks are paying attention to it. One of the stats I said earlier was, you know, over 81% of central banks representing over 90% of the global GDP are looking at it.  But I still don’t know that they know how they’re going to adopt or implement it. The one thing I can say about central coins, they’re going to be a real currency. There’s no debate about it because there’s a government behind it. Do you think they’re going to catch on or do you even think they’re needed?

Buddy Doyle:  Well, I actually think there is a use for it in the U S as we mentioned, there’s an awful lot of unbanked folks in the US.  It does not represent the majority of the wealth, but I do think that currency exchange is going to be necessary. And so I think we’re going to get one. I think we should be in the lead, but I’m one of those guys that likes to move forward instead of looking backwards so much. And I think that when you look at the efficiency and the benefits that you can actually obtain, when you really start looking at how the future could look with smart contracts, identification, verification, and things like that, I think we may not feel like we need it now, but if we don’t do it now, I think we’re going to feel like we should have done it sooner.  Because I do agree the world is moving forward with or without the United States.  We’ll either be trying to catch up down the road, which we’ve been in that position before with things,  or we’ll become the leader again and will become the dominant player.

But depending on your perspective, you might want the US to be successful and dominant in markets and leaders in global economies, tends to make things feel a little bit better right now, anyway, in terms of economic wealth and prosperity and things like that. So I would not want to see us get left behind here. And I think, again, if you take the word Bitcoin out or Ethereum out, and you just think efficiency, process reconciliation, the overall systematic way, we approach things, there’s so much promise to this that it’s foolish not to look at it. And I just don’t want to be the guy when they’re flying off into space as tourists trying to figure out ‘Is the world flat or round?’. We’ve got to move forward on this, in my opinion, to stay relevant in the marketplace for the long run.  Then maybe we’re really big and it’ll take a long time to become irrelevant.  Leadership, that’s a jeopardy.

Jeff Gearhart:  We seem to be proceeding rather cautiously, which is fine from a fed perspective. But when you look at the leading economies in the world that are focused on this, it’s going to move forward.

Buddy Doyle:  Every bank that’s worth anything is looking at this, right? If you’re a bank not looking at this, I didn’t mean to insult you, but there’s a lot of energy around this and the banking system, because there’s a lot of promise to it in the banking system,  And the things that have been the most challenging, there are things that are being done to address those challenges with the technology.  The slowness of the reconciliation process to slow down transactions is being enhanced with lightning networks.  The challenges we face, there are ways to solve them. People are working on it. And again, I think the fed needs to come along.   I think they will. I think they’re going to start getting some pressure from the legislative branch of government to really start thinking about our future.  And what the next 50 years of our economy looks like, I think, is going to be dependent on the decisions that are being made today.

Jeff Gearhart:  I agree, and it it’ll be interesting to watch. So we’ve spent a lot of time talking about currencies, whether it’s a true cryptocurrency, not backed by anything or stable coins that have some type of backing and technically, or qualify as securities, or since they’re derivatives of something such as that or central bank coins. This is all built on blockchain, distributed ledger technology, just for a second. That’s really exciting. You’re seeing the payment system change. So that’s just the exchange of value, but Broadridge is running their own repo. What do they call it? A distributed ledger, DLR and UBS just signed up. They have 20 of the 24 primary dealers now on the system trading repo.  They’ve reduced the time to execute a repo transaction. They’ve reduced risks. They’ve improved operational efficiencies. This is going to permeate everything in the broker dealer world, the securities world in our industry. That, to me, that’s pretty exciting. There’s an initiative to go to T plus one, but we’re laying the groundwork for making it even taking it even further.

Buddy Doyle:  Yeah, I think it repos a great use case for a blockchain platform because you’ve got collateral and funds that you want to trade for each other, and you want to know who’s got the collateral and that it’s good collateral.  I think it’s a really good use case and the fact that it is working as well as it does is a tribute to what the future could look like. And when you think about repos, you don’t think about trading in the way you do high frequency trading where micro-seconds matter a lot. You know that repo business has never needed that lightning speed to be effective. The verification process that you can get out of a distributed ledger and the reconciliations that go forth on that, and this is where trust becomes real because of the technology.  You know who they are, and you know how things have moved around, and they just keep putting another encrypted hash on top of the trail to tell you what you did next. And it’s, it’s a really good case.  And it is working. And it’s a good way to get people comfortable with technology. I think it’s shows you what can happen.

Jeff Gearhart:  Nobody’s ever called repo trades, very exciting, but they are kind of the lifeblood of the securities market because that’s how everybody funds every day and supports the rest of the security transaction. So it is interesting and it’s still small. I think 50 billion traded and in the repo market, that’s incredibly small.  It’s going to change things.  You can do bilateral and not have to move the collateral anymore. And instead of typical tri-party arrangements and things of that nature. So it’s going to make everything much more efficient, really cut some costs out and reduce risk. So interesting topic. I just wanted to bring it up because we keep talking about currencies, but there are major changes coming to the securities industry.

Buddy Doyle:  And what you just said in sort of a passing comment, is where real value is going to get created. You’re taking out the intermediary from the transaction.  You’re cutting a step out; you’re cutting out the middleman.  And that is a big deal. And it’s the biggest deal for the middlemen. Just kind of take a look at where this thing is going and ask yourself, are you ready for this? Are you prepared for what seems to be coming down the road over the next 5, 10, 15, 20 years? Are you going to become irrelevant?  That’s why I think banks are big into this because they want to be a player. They don’t want to be an eliminated intermediary. And I think there’s a lot of value that the banking system can have for a long time, but it’s going to be quite a bit different.

Jeff Gearhart:  I agree. I think the major players will evolve. They’re invested in it heavily. We’ll see where it goes.  But if you don’t, you’ll be left behind that’s for sure.

Buddy Doyle:  Yeah. I think it’s kind of interesting, right? I’m kind of an old timer in the industry. I kept their repo margin stuff on a spreadsheet back in the late eighties and early nineties. And so it’s exciting to see this evolution occurring. We also have to remember anybody in this industry, that’s under 25, doesn’t remember life without an iPhone. So, and they’re the future. They’re the people that are going to be the clients of the future. They’re the key clients of the future. Are you ready to serve them or not?

Jeff Gearhart:  Right. I agree. Just one point on the last topic about the intermediaries and the large institutions that sometimes I think people were trying to disintermediate. If you Google the largest blockchain company, the answer is IBM. The major companies are invested in it.  They’re going to stay invested in it and the banks are going to stay invested in it. So it’ll be interesting as we go forward. Agreed.

Oyster:  Thanks again for listening to the Oyster Stew Podcast.  Don’t forget to subscribe so we can continue to bring you resources to help you make the best decisions for your firm. If you’re struggling with a topic and you’d like us to do a podcast on it, or you’d like a free consultation, feel free to reach out to us at 804-965-5400 or by visiting our website at

About The Podcast Speakers
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Buddy Doyle

As the CEO of Oyster Consulting, Buddy Doyle has led the charge to create a successful organization built on the belief that transforming experienced industry practitioners into consultants adds more value to our clients.

Photo of Jeff Gearhart

Jeffrey Gearhart

Jeffrey Gearhart is an intuitive, analytical leader with over 30 years of experience in banking and capital markets businesses. Prior to joining Oyster, he held senior leadership roles with The Bank of New York Mellon, including business line COO, CFO, business development and relationship management.

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