Web3 Has Its Base Camp. We Need Institutions to Complete the Journey.

‘Blockchain has implications far beyond financial transactions. It offers solutions in a variety of sectors where transparency, immutability, and security are highly desirable.’

Jay Steinback is the CEO and Chairman of yWhales, one of the world’s most exclusive and global communities of CEOs “in the top 3% worldwide” who “believe in Web3’s potential to change how we live, work and create together.” Archie talked with Jay about how blockchain will revolutionize how we invest and trade, its implications beyond finance, and using the technology to democratize and innovate AI.

Blockchain is viewed as an enabler for cryptocurrencies. Has this distracted people from understanding its wider role and benefits to the financial sector? 

In my view, we're only scratching the surface of what blockchain technology can achieve. Although it's a relatively novel technology at less than 15 years old, compared to established financial systems like the 50-year-old SWIFT,  blockchain’s potential is already evident. The technology has shown it can outperform traditional systems like SWIFT in several aspects, but the difference is that it's just not quite ready for worldwide adoption.

Envisioning the capabilities of more advanced blockchain systems in the near future necessitates a paradigm shift in the entire financial sector. The sector needs to embrace this new technology. Such a significant change will not occur rapidly or without rigorous discussion among institutional stakeholders. It's similar to the initial resistance many businesses had against adopting email in its early days.

Cryptocurrencies are merely one of the initial applications of blockchain. However, I would argue that referring to these as actual “currencies” might be a misnomer, contributing to some of the confusion that has arisen in the marketplace due to the somewhat problematic terminology adopted by Web3.

While there are arguments “for” and “against” the altruistic benefits of digital currencies and DeFi (decentralized finance) overall, is the case for blockchain more straightforward?

The debate around digital currencies and DeFi is multifaceted, with proponents and detractors often focusing on different aspects. The potential of blockchain technology, the foundation of these innovations, tends to garner more universal approval. The primary reason for this broader acceptance is that blockchain, as an incorruptible digital ledger, has implications far beyond financial transactions. It offers solutions in a variety of sectors, such as supply chain management, healthcare, and even voting systems, where transparency, immutability, and security are highly desirable. 

It's important to note that while DeFi, in its ideal form, promises a fully decentralized and transparent system, we have yet to surmount various technical and societal hurdles. I hold the view that a pragmatic hybrid approach, combining elements of centralization and decentralization, might be more effective. An optimal blend of centralized regulatory oversight and decentralized protocols can enhance consumer protection and trust while also preserving the benefits of DeFi. The end goal should remain a gradual transition toward a more decentralized system once we have robust mechanisms to mitigate theft and loss.

What types of possibilities will arise in linking blockchain infrastructure with traditional capital markets? Could it happen sooner rather than later?

It opens a ton of possibilities, with some developments already underway. Tokenization, or the conversion of assets into blockchain-based tokens, could revolutionize how we invest and trade. This system could offer unprecedented liquidity, fractional ownership, and 24/7 market operation, making investment more accessible to a broader population.

Blockchain's transparency and immutability could drastically enhance the auditability of financial transactions, reducing fraud and enhancing investor confidence. Smart contracts—self-executing contracts with the terms directly written into code—could automate many labor-intensive processes, improving efficiency and lowering costs.

Could this happen soon? Sure, the wheels are already in motion, with numerous financial institutions exploring and implementing blockchain-based solutions. It's important to manage expectations. Integrating blockchain into capital markets isn't merely a technical challenge. There are regulatory, legal, and cultural challenges, all demanding careful scrutiny and collaboration across sectors. These changes will take time to implement thoroughly and responsibly. 

How do you see blockchain informing generative AI technologies? Is there a convergent path between the two that will drive further disruption?

Blockchain could provide a transparent, immutable ledger for data transactions, helping to ensure data integrity and privacy. Meanwhile, generative AI could be used to create synthetic datasets that closely resemble real ones but don't compromise privacy, enabling more responsible AI training and deployment. 

Blockchain could enable decentralized AI models. Traditionally, AI development has been the domain of organizations with significant resources, given the vast amounts of data and computational power required. However, through blockchain, a decentralized network of AI contributors can pool together resources and share the benefits equitably. This could democratize AI development, fostering innovation and competition.

As for disruptions, these technologies could redefine business processes. Smart contracts enabled by blockchain could automate complex transactions, while AI could provide real-time insights and predictions, thereby streamlining decision-making. Blockchain and AI could create a more transparent and efficient business landscape.

 With all of your previous business pursuits, what attracted you to blockchain? 

I’ve always been passionate about how technology can bring change, and I've had a front-row seat to the evolution of the digital landscape. During the onset of Web1, I was a young tech enthusiast, marveling at the dawn of the internet era. When Web2 swept in with its interactive platforms, I was deep in my business ventures and witnessed how it reshaped industries, including my own.

Blockchain struck me as a fresh evolution, a third act in this captivating drama, carrying a promise even more profound than its predecessors. Its decentralized nature was a breath of fresh air, challenging long-held norms about control and trust in the digital sphere.

I was drawn in by blockchain's audacious promise and potential, reminiscent of the excitement I felt when the internet was just a fledgling concept. It felt like a familiar call to an uncharted frontier. And this time around, I'm in a position where I can truly engage and help drive its growth. 

What about the rest of us? How will blockchain play a role in how we transact business or manage our lives?

Blockchain will redefine the concept of data ownership. Instead of having your data dispersed across various entities, blockchain will allow for a secure, unified system where you are the true owner and gatekeeper of your information. It's an empowering vision of digital autonomy.

On a global scale, blockchain could significantly streamline cross-border transactions, making them faster, cheaper, and more transparent. Imagine an entrepreneur in a remote corner of the world having the same access to financial services as their counterparts in the developed world.

As for investments, the tokenization potential of blockchain could enable diversified portfolios like we've never seen before. The ability to tokenize assets such as real estate, art, or company shares could democratize investment, creating opportunities for people who traditionally may not have had access. 

How do you see the regulatory environment for Defi and blockchain evolving?

Navigating the regulatory landscape for DeFi and blockchain is a bit like hiking in uncharted territory. The view is breathtaking, the potential is immense, but you've got to tread carefully, and that's where regulation comes into play.

I believe regulation is a must-have for blockchain to go big. Retail traders, as passionate as they are, can't shoulder the burden of taking blockchain mainstream by themselves. They're like the pioneers setting up the initial base camp, but to scale the mountain, we need the big institutions to join the expedition.

Now, these institutions aren't thrill-seekers; they're careful climbers. They won't make a move until they have a clear lay of the land, understand the risks involved, and have the right safety gear (in this case, mitigation and insurance measures). Clear regulation provides this assurance, mapping out the terrain for these institutions to step in confidently.

That said, regulation isn't just about assuring the big players. It's also about keeping the journey safe and fair for everyone. It can help shield consumers, discourage misuse, and maintain fair competition. Sure, there might be some boundaries set, but they also help foster trust and credibility, which is essential for any technology to flourish.

Looking down the trail, there will likely be more legislation popping up. The key is to ensure these laws strike a good balance: they should offer protection and clarity without stifling innovation. We're not looking for unnecessary hurdles but rather guidelines to keep us on track.

What businesses or sites would you recommend readers look at in terms of doing exciting things while utilizing blockchain? 

ENS, Ethereum Name Service, is a decentralized naming platform for the Ethereum blockchain. 
Game of Silks is a fantasy sports game revolving around thoroughbred horse racing with NFTs and avatars.

yWhales is the global community of mainly YPO members who are driving the innovations around blockchain and Web3. There are many content platforms and sessions within the global community (more than 50% outside the U.S.) to share knowledge, ideas, and investment opportunities amongst those in the sector.