Blockchain was once associated overwhelmingly with cryptocurrencies — and specifically its poster children, Bitcoin and Ethereum. The latter, in particular, has thrust the industry forwards into the realm of smart contracts integration.
Ethereum started to bear fruit arguably most prominently last year amid a boom in non-fungible tokens (NFTs), while decentralized finance (DeFi) offered a somewhat less frothy perceived sanctuary for those seeking alternatives to the dominance of traditional heavyweights in the finance sector.
Both are set to play critical roles in metaverses, digital worlds that Citi Global Insights Global Head of Banking, FinTech & Digital Assets Ronit Ghose calls “the next generation of the internet.”
“If we define it as the next generation of the internet, of course you’re going to be interested, because the internet has reshaped our lives over the last 15, 20 years,” Ghose told Forkast.
The metaverse has become more than just a playground for celebrities and gamers. Banking behemoths JPMorgan and HSBC, for instance, have taken some of the traditional finance industry’s first steps into the digital realm.
“Obviously a great bank that you referred to there,” Ghose said of the New York-based lender. “But the first in the metaverse were probably the Koreans. And many of the South Korean financial institutions, banks, brokerage firms already established a metaverse presence last year.”
Citi itself released a research report on the Metaverse two months ago, predicting that most metaverse experiences would be accessed through smartphones, unlocking a range of three-dimensional experiences.
“The bad news is … the issue with the metaverse is latency,” Ghose said. “The latency is going to be an issue based on the telco infrastructure today. Also, bandwidth may be less of an issue, given that 5G is being rolled out across the world.”
Yet Ghose doesn’t believe that major bank forays into metaverses are as important as some may believe.
“‘Hey, we’re renting or owning a piece of virtual land.’ That’s cute, but it’s just cute. But what else are you doing?” he asked. “Are you actively helping your clients provide services … whether fiat or crypto? Can you, in a regulatory compliant way, get involved in DeFi and blockchain, which is in the open metaverse?
Ghose says bleeding edge DeFi won’t replace existing financial infrastructure, but that DeFi will be accessed through existing TradFi (traditional finance) channels. Find out why in his full interview with Forkast Editor-in-Chief Angie Lau, and learn more about the future of metaverses and how they are set to become the next stage in the development of the internet.
Highlights
- Driven by data: “If I were a government or a policymaker or a philanthropist or even a profit-motivated billionaire, I would take a leaf out of the India story. I’ve had a number of fintech entrepreneurs and friends of mine tell me my business wouldn’t exist in India today if we didn’t have cheap data. And cheap data is not quite, but almost as important as having drinking water and good healthcare. It’s not quite there, but it’s almost as powerful. The internet is flattening everything globally, just like geopolitics is pulling us apart. Technology is pulling us back together as a global community. The metaverse can do that, but just on the Nth degree.”
- Torching TradFi: “If you’re a DeFi maximalist, you’re like, ‘Burn the banks down. We don’t need them, get rid of them. We can operate in a trustless way based on code and smart contracts.’ And that’s nice. I mean, I don’t mean to be flippant, but the kind of maximized view of it is just like, that’s nice. It kind of works in a very small niche or an academic paper. You can play this in 10 years and make fun of me when I’ve been proven wrong. But right now, I just think it looks nice now.”
- The importance of interfaces: “Now, for most of us, I think for at least the next 5-7 years, access to DeFi is still going to be CeFi (centralized finance) or TradFi, and it’s the same idea as the reason we use our iPhones all the time: it’s simple, it’s intuitive. I can unpack the box, whether it’s the laptop or the computer. I don’t need to be an engineer to make it work. Boom, it works. The interface is really easy. Most of Web 3.0 and DeFi isn’t for 98% of the population, so there’s still going to be some kind of interface.”
- No escape from macroeconomics: “Recently, there was a big increase in the correlation of U.S. money supply, or the change in U.S. money supply in the last couple of years, and crypto and Bitcoin in particular. And so maybe it’s not so much that the stock market was correlated with Bitcoin — it’s that both Bitcoin and the stock market were correlated with U.S. money supply or with global credit creation.”
Transcript
Angie Lau: Memecoins, NFTs, DeFi, play-to-earn and Web 3.0 — just some of the jargon from the virtual world that’s increasingly becoming a part of our daily lives. And this virtual world and economy could be worth — get this — trillions of dollars in just a few short years from now.
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Editor-in-Chief Angie Lau.
Well, today we’re in conversation with Ronit Ghose, who is the global head of banking, fintech and digital assets for Citi Global Insights. And he’s tracking the rise of the metaverse very closely for one of the world’s biggest banks. It’s great to have you on the show with me, Ronit. Welcome.
Ronit Ghose: Thanks for having me.
Lau: All right. So when did Citi start working on its crypto and metaverse positioning? When did it start for the bank and when did it start for you?
Ghose: I work for our thought leadership team, which I run, called Citi Global Insights. So our mandate is to horizon-scan. So, we’re sort of mandated or tasked to look at what’s coming over the horizon. A lot of what we do runs ahead of what the bank is doing operationally — and I’ll come back to that in a second. I’ve been looking at crypto on and off from probably about 2016, 2017 — not super early, but still, it’s been a few years, partly because I was interacting a lot with our Asia-based clients, and in 2016 it was evident in Hong Kong, in (South) Korea, in other parts of East Asia, that this was really taking off and we were getting thousands of people dialing into events we were hosting on the topic. And now we’ve noticed another resurgence in the last 18 to 24 months, both with institutions, so family offices, hedge funds, and now with companies.
Lau: What are they asking you?
Ghose: How do we do this? What do we do? What is it? So some people are like, ‘We’ve already got an NFT as part of our marketing strategy or our branding strategy. Tell me what else I should be doing.’ Others are, ‘We’re thinking about it, but we’re not in the space. How do I get involved?’ And there are others who are, ‘I want to invest in this space. I want a better way to make money, so help me navigate that space.’ Everyone’s interested in this space, because if you think about it, the metaverse is the next generation of the internet, and blockchain being a subset of that. So it’s overlapping but not the same. It’s not synonymous, but it’s overlapping.
So, in that context, if we define it as the next generation of the internet, of course you’re going to be interested, because the Internet has reshaped our lives over the last 15, 20 years.
Lau: And the question now is, the potential is so enormous. And you just recently released your metaverse and money report — Citi Insights, as you’ve said — potentially representing an US$8 trillion to US$13 trillion opportunity by 2030. The positioning — that metaverse is the next internet, the next generation of the internet … What’s the potential here? What’s the thinking behind the estimation of an up to $13 trillion opportunity?
Ghose: So it’s the 1990s. I’m in college. To use the Internet, I had to go to the computer lab and fight with physics Ph.D.s, who would win. They knew computers better than me. Today, my youngest boy, who’s eight, is accessing the Internet for eight, 12 hours a day, probably, at the weekends — hopefully not on school days. And he’s doing it through a smartphone. Now we’re talking about a next generation which is device-agnostic — could be smartphone-based, could be VR (virtual reality) headset-based, could be AR (augmented reality)-based, gaming device … It’s multi-device, device-agnostic. And it’s visual. It’s immersive. And that’s different, and it’s potentially much more exciting. And it’s much more powerful for all kinds of use cases, including things like education, health — and we’ll come back to that — but at the moment it’s 2D visual or it’s read and write.
But imagine a 3D visual world, an immersive world. But wait, that’s the world we live in, the physical world. So, for the first time in about 20 or 30 years, we’ve managed to recreate the physical world — or we’re about to start recreating at scale the physical world in a digital world. So, for me, the metaverse is powerful because I’m meshing the best bits of the physical world and the best bits of the digital world. And we can unleash so many use cases for good — and also for bad. Everything that’s bad about the internet, the Web 2.0 world, could get magnified to the Nth degree in a metaverse or Web 3.0 world.
So there’s huge potential, huge upside, lots of exciting use cases, and thinking as an investor or a banker, lots of — trillions of dollars of — time, but also significant policy questions about, ‘Is this thing just going to go out of control? How are we going to monitor it? How are we going to regulate it? How are we going to ensure that our rights, our freedoms … civility is maintained in that space?’
Lau: Those are huge questions to ask. And the technology is advancing so quickly that it’s really hard to keep up optimistically as well, though. We’re seeing the emergence of how people are using the technology to be human in our space — DAOs (decentralized autonomous organizations), for example — how we want to do peer-to-peer in DeFi. And it does come with good and bad. And those are really critical questions to ask. The key is, I think, how do we economize this and make it a fair play?
Ghose: Let’s put some numbers around this. First of all, let’s assume it’s a VR-based entry or a VR-based portal. What does it cost? A couple hundred dollars. It’s expensive, but it’s not US$1,000-plus that we spend on smartphones or the shiny latest Apple devices. So it’s a couple of hundred dollars. That’s the basic kind of VR headset. Obviously more advanced VR, those could be US$1,000-plus. And with all technology, over time, costs come down. So, hopefully the consumer interface, the headset — either VR or AR — or what’s likely to happen — and we say this scenario in our report — is that most people will access the ‘metaverse-lite’ experience through their phones. They’ll have some kind of 3D experience with that phone. That’s going to be pretty inclusive, actually. That’s the good news.
The bad news is, for the metaverse to work — and I’m doing this from a hotel room, and we were discussing just before we went live, do I have enough, whatever, bandwidth — the issue with the metaverse is latency. I need the images, the data to go back and forth for me to have that kind of 3D visual world that I’m interacting in. And to have latency in the single-digit milliseconds. The latency is going to be an issue based on the telco infrastructure today. Also, bandwidth may be less of an issue, given that 5G is being rolled out across the world.
Let’s just take a practical example. If I’m doing a Zoom call with, say, some of my friends, fintech or banking or policy in various African markets which are currently booming for fintech, their Zoom call drops regularly in a way. If I’m doing the call in Dubai with someone in Abu Dhabi, it doesn’t drop. I’m based in Dubai. Or if I’m doing the call from Dubai to someone in London, where I grew up, it doesn’t drop. But I’m doing it to Lagos — it will drop regularly, and that’s going to be an issue. If I were a government or a policymaker or a philanthropist or even a profit-motivated billionaire, I would take a leaf out of the India story. I’ve had a number of fintech entrepreneurs and friends of mine tell me my business wouldn’t exist in India today if we didn’t have cheap data. And cheap data is not quite, but almost as important as having drinking water and good healthcare. It’s not quite there, but it’s almost as powerful.
The internet is flattening everything globally, just like geopolitics is pulling us apart. Technology is pulling us back together as a global community. The metaverse can do that, but just on the Nth degree. So I’m hopeful that people will step up … just out of sheer self-interest, and we as a financial institution and others want to be part of that process.
Lau: That’s a great point. We were talking about the historical significance of the role of banks. First, in the Industrial Revolution, with the modern banks of today really having their roots back then to fund the industry, and now we’re at the cusp of something really interesting — the next generation of the internet. And you say, Ronit, the banks have a critical role to play here. How?
Ghose: Multiple, multiple levels. To build the infrastructure of the metaverse is going to be hundreds of billions of dollars in terms of capital expenditure for semiconductors, for chips, for bandwidth. And then on top of that, the applications that we’ve built. And you’re potentially talking about billions, if not low trillions, of dollars of spend going in and a TAM that’s much bigger than that — the total addressable market.
So, that’s going to need funding. That’s what banks do. Either through our balance sheets or as intermediaries, increasingly in recent decades, we provide access to funding. So that’s rule No.1. Rule No.2 is strategic dialog — helping big corporate clients and governments navigate this space. So that’s the kind of strategy.
Rule No.3 is on the investor side — investors, family offices, institutions, pension funds. We’re looking at how best to invest, and that’s where we can help, as well through analysis. And I say ‘we’ as the financial industry generically rather than my company. We can help in terms of financial analysis, in terms of investment advice. So, there are so many dimensions. At a very basic level as well, everything we do will change, just like the pandemic. Video conferencing has already changed.
Lau: In this Covid world and in this globally connected world, if we can’t physically travel to see each other, are we then disconnected? As you’ve said, you’re seeing the opportunity as a financial industry. In February, we heard from JPMorgan, the first major bank to establish a metaverse presence, opening a virtual lounge in (metaverse platform) Decentraland. I’m curious what the internal response was at Citi, and also, what do you think the response was amongst your peers in the institutional space?
Ghose: Sure. So, obviously a great bank that you referred to there, but the first in the metaverse were probably the Koreans. Maybe they’re not global, but South Korea, as most of your audience knows, is so far ahead of many other countries when it comes to technology. And many of the South Korean financial institutions, banks, brokerage firms already established a metaverse presence last year.
Now, there’s a kind of bigger question to throw out there — and I’m not picking on any particular institution, be it Korean, American, British, Hong Kong, Chinese … but how much of this is a kind of flag-waving exercise? It’s like ‘Hey, we’re renting or owning a piece of virtual land.’ That’s cute, but it’s just cute. But what else are you doing? Are you actively helping your clients provide services … whether fiat or crypto? Can you, in a regulatory compliant way, get involved in DeFi and blockchain, which is the open metaverse? So those are the broader questions to ask as an observer or a client of a bank or an analyst.
Lau: That’s a great point. And I want to ask you about open metaverse and DeFi. How do banks coexist in a highly unregulated space like DeFi?
Ghose: It’s a really interesting question. DeFi is decentralized finance. It’s blockchain-based financial services, and the role of a centralized institution, be it the stock exchange, the custodian, the bank is replaced by a smart contract or smart contracts. And the corporate structure, the organizational structure is a DAO rather than a corporate or a PLC. So that’s the definition.
In a pure DeFi world. If you’re a DeFi maximalist, you’re like, ‘Burn the banks down. We don’t need them, get rid of them. We can operate in a trustless way based on code and smart contracts.’ And that’s nice. I mean, I don’t mean to be flippant, but the kind of maximized view of it is just like, that’s nice. It kind of works in a very small niche or an academic paper. You can play this in 10 years and make fun of me when I’ve been proven wrong. But right now, I just think it looks nice now.
Now. But it’s also super-relevant. We can’t say I’m going to ignore it because it looks a little bit … because what we think will happen is that there are benefits of DeFi, particularly where there’s market failure, where the existing system doesn’t work.
So, I sit in Dubai, our family’s from the U.K. Just this morning, without oversharing, my 19-year-old son said, ‘College fees got to be paid, dad.’ And I transferred some money. And the money got from Dubai to the U.K. very, very quickly. I mean, I got on my laptop in my hotel room in (Washington) D.C. and the money went from one big American bank branch in Dubai to one very big British bank branch in London. It was done. Now, last year — it was two years ago — I tried to send money from Dubai to Cairo. Took three weeks. Okay, that was Eid holidays in the Middle East. It took three weeks. I didn’t know where the money was. The gum has not gone. What DeFi does — what crypto, digital assets do — is it moves money faster than the existing traditional fiat rails, in many but not all cases.
It also provides an opportunity for people who feel either because of generation, because they’re younger, or because they’re excluded in their community — all the countries excluded from the global system — it gives them another option. So, I like to think of it as a really neat ‘Option B’ for many people.
And lastly, we talk a lot about the metaverse, but this could be a really good use case. In a way, for me, blockchain was like a solution looking for a problem. And I’ve got the problem now, which is in a metaverse or a digitally native internet world — automatic settlement, moving money digitally, makes more sense in many cases than going through the existing card-based fiat system. So, in a way, the metaverse could be a really good use case, particularly the open metaverse.
So that’s why I think you can’t ignore DeFi, despite my earlier comments about (how) it’s going to be a niche. Now, for most of us, I think for at least the next 5-7 years, access to DeFi is still going to be CeFi or TradFi, and it’s the same idea as the reason we use our iPhones all the time: it’s simple, it’s intuitive. I can unpack the box, whether it’s the laptop or the computer. I don’t need to be an engineer to make it work. Boom, it works. The interface is really easy. Most of Web 3.0 and DeFi isn’t for 98% of the population, so there’s still going to be some kind of interface.
And the role for the banks is, you can be the interface. Would you want to have a big tech company or a next-generation like Coinbase be the interface? And the danger for the banks is that by the time they get around to, or they’re allowed to, it’s too late to be the interface. But we still need an interface, for not all, but for many of us.
Lau: Well, it potentially also answers the giant elephant — ape, gorilla, whatever you want to call it — in the room, and that’s regulatory challenges. I’d like to shift the discussion to one of the most important elements of the metaverse — and it’s digital assets. It’s Bitcoin, and it’s also about the regulatory space. But let’s talk about Bitcoin here first, Ronit. The original cryptocurrency is becoming increasingly correlated with traditional financial markets. Its correlation to the S&P 500 hit a 17-month high at the end of March. So, once upon a time it was for CyberPunks — now it’s very much correlated to Wall Street. What do you see as the evolution of Bitcoin, the main driver behind this increased correlation? What does this mean for crypto innovation?
Ghose: It’s no surprise that correlations have picked up, and they’ve been rising for a while. I mean, before, there was a pretty decent correlation between Chinese credit creation and Bitcoin prices, when China had a disproportionate role in both mining and trading of Bitcoin a few years back. Recently, there was a big increase in the correlation of U.S. money supply, or the change in U.S. money supply in the last couple of years, and crypto and Bitcoin in particular. And so maybe it’s not so much that the stock market was correlated with Bitcoin — it’s that both Bitcoin and the stock market were correlated with U.S. money supply or with global credit creation.
It’s a risk asset, and part of it goes back to your technology question. It’s about the future. How is crypto similar to, say, a high hyper-growth company with no EBITDA (earnings before interest, taxes, depreciation, and amortization) or low EBITDA? Because you’re saying this is a vision of the future, because I believe in crypto decentralization, the values of that and the benefits of that. If you think about it in a purely traditional financial way, you’re discounting back that value today.
So, a lot of value is out in the future because the user numbers today in crypto are still low. But in the future, there’s going to be maybe billions of people using blockchain. Today there aren’t. It’s a very small number. So, because you’re discounting it back, it’s going to be a volatile, high-risk asset, and when you had stimulus — Covid stimulus, the massive ramping up of money supply in the U.S. and elsewhere in the Western world — no surprise correlation of risk assets went up. That’s not so bad.
Lau: And what’s the role of regulators and policymakers in this space, especially as we see more institutional money coming into the system. Compliance issues, all of that is actually starting to really shape how and where crypto is growing.
Ghose: Yeah. It’s a really important question, because like all new technologies, all new things, all new business models, all new technologies somewhat start in the gray or illicit areas. It’s not crypto-specific. It happens. Because oftentimes — think of the sharing economy, whether it’s Uber or Airbnb — rules don’t exist, or they come along and they break existing rules. And oftentimes the illicit sectors tend to be more entrepreneurial initially.
So, because of that kind of heritage that Bitcoin and crypto had — and there’s still a huge amount of scams and rug-pulls in DeFi — regulators start from a position of caution because they’ve seen, sort of, the bad actors. And also regulators start from a position of, ‘Hey, this is not something we’re used to regulating, so we need to learn about it.’ So they move at a slower speed, naturally and understandably. Then the innovators building in the space — what we’re seeing across the world — there are different paces — is a much greater understanding of the topic. So, inside regulators around the world, in the U.S., in other parts, there’s huge understanding compared to five years ago, and you’re also getting some sort of competition between states.
So, as I said, I’m based in the UAE. The UAE has taken the view that, ‘We can try to regulate this, and then use that to create a hub.’ Just like finance is regulated. Just like London grew in the 1960s as the financial center, we emerged. We’re going to start seeing some jurisdictions running ahead. There’ll be other jurisdictions that say, ‘Nah, I don’t see the upside because I want to control. And inherently why do I need this?’ So there’ll be other jurisdictions that are more based on sort of democratic give-and-take. It’ll have to go through the process like electoral cycles, and it’ll have to be a response to the market, if you like. Polls, elections. Young people saying, ‘No, this is actually good rather than bad. If you ban it completely, I’m not going to vote for you.’ So, that’ll probably play out in some states as well.
Lau: And we’re seeing it play out in some countries — South Korea, to be very specific. I want to quickly talk about Dubai here. You’re based in the Emirates. We’ve seen so much interest in the city from crypto participants. Why is everyone moving there?
Ghose: Join me. Come on over. I think it’s regulatory certainty. Even two years ago, there wasn’t that much regulatory certainty. You could come to Dubai, you could go on a sandbox, and then the banks wouldn’t open a bank account for you if you were a crypto company. And this happens all over the world. It was happening in the UAE as well. But you had very clear messages top down from the rulers of the country that we’re going to try to regulate this. ADGM (Abu Dhabi Global Market) in Abu Dhabi, in Dubai — there’s a virtual asset regulator that’s been announced recently.
They’re putting in place frameworks to allow regulation. There’s a pro-future or a pro-technology agenda, and these are small places. Maybe someone like a startup or a speedboat, they can move faster. They can pivot. Whereas larger economies, larger systems, maybe they’re like oil tankers. They’re powerful, but maybe they don’t move or pivot so fast. So, I think that’s what’s happening. Also for eight months of the year, seven months a year, it’s a great place to live.
Lau: But let’s talk about infra, as well as the regulatory and financial services support. Is the government giving some concessions? Is licensing and the regulatory process streamlined, making it easy to set up shop? What would the experience be if a startup were to land in Dubai and say, ‘Okay, I’m ready’? How easy is it to set up a business?
Ghose: Generically, Dubai is easy — or relatively easy — to set up a business compared to many countries. You can just look at the stats for the number of days, the number of hours spent. So, the process of incorporating a business is relatively easy. I’m not a lawyer, I’m not a compliance advisor, so if your audience does have questions on this, there are people we can recommend. Or you can look at websites and podcasts that have taken place on this topic. So you should get proper professional advice, not from an analyst like me.
But it’s relatively easy to set up a business. Anything that’s going to touch anywhere in the crypto world is going to take time. The difference is that now in Dubai, in the federal capital of the UAE, Abu Dhabi, in both locations, there are rules. And it’s much easier for a bank or any provider — a professional services firm — to deal with you, if there’s a regulatory framework. Where there’s no rules, it’s much harder for a regulated entity like a bank to say, ‘I’m going to deal with you.’ There are rules in place. It’s not perfect yet, but it’s a great sort of first few steps.
Lau: Amazing conversation. Ronit. We really appreciate you joining us on Word on the Block. And you’re welcome back anytime.
Ghose: Thank you.
Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block. I’m Angie Lau, Editor-in-Chief of Forkast. Until the next time.