The Scoop Live: Fidelity Digital Assets President, Tom Jessop



Episode 33 of The Scoop was recorded live at The Block's headquarters in NYC with Frank Chaparro and Tom Jessop, President of Fidelity Digital Assets. Listen below, and subscribe to The Scoop on AppleSpotifyGoogle PlayStitcher, or wherever you listen to podcasts. Email feedback and revision requests to

Tom Jessop is the President of Fidelity Digital Assets. In this conversation Frank and Tom discuss:

  • Fidelity's process in deciding between servicing institutions or retail
  • The importance of custodians as a foundation for the digital assets market
  • Why even the best technology may fail when there is no mature market structure
  • Fidelity Digital Assets offering of execution services
  • Why it is important to implement aspects of traditional finance into the digital assets space

The transcript is provided for your convenience, please excuse any errors or typos resulting from the transcription process:

Ryan Todd So excited to introduce our two guests or one guest. Directly from the bar, we have the man, the myth, the legend Frank Chaparro, and we have Tom Jessop, President of Fidelity Digital Assets.

Frank Chaparro Thank you very much, we're very excited to host this event. It's the first one that we've done live of the year. Tom Jessop, the President of Fidelity Digital Assets, the man who Coin Desk said could bridge the gap between Wall Street and crypto. Fidelity Digital Assets has an interesting history, I think. If we look back, harken upon when Abigail Johnson--I remember I was at Business Insider, I was just starting covering the space--and The Wall Street Journal reported that she said at an event, "I love this stuff." And then in January 2018, you joined the company. And then in April 2018, a young, bushy-tailed, bright-eyed reporter named Frank Chaparro reported that Fidelity, a household name in American investing, is planning a big move into cryptocurrency trading and custody. And the report fell a little bit short in terms of exactly what you guys were doing, but you were indeed plotting all this time figuring out what you guys were going to set your sights on. And then in October, you announced the launch of Fidelity Digital Assets, and here we are, over a year later, in custody, trading services. Walk us through that journey.

Tom Jessop Yeah, I mean, going back coming back to the Abby comment, I mean, look, I've been at Fidelity for two years, and the one thing I've been really impressed with is the amount of capital, both financial and human, that the firm spends on innovation. And one interesting factoid is we have a wall on the third floor of our building where we have the Fidelity Center for Applied Technology. In the early 90s, Fidelity was one of the first retail brokers to actually push an online trading solution. Now, I don't think many people in this room probably weren't born back then, but that was pushed to clients in the form of a three and a half inch floppy disk and a modem connection to trade online with Fidelity. This is preceding the Web by about three or four years. So, you know, the firm has had a long history of innovating. And so when Abby first thought about or learned about blockchain and this idea, frictionless capital markets, that was really sort of the tag line that went along with blockchain technology that spun up a fair bit of activity in two directions. One is understanding digital assets and cryptocurrencies. I think the other one, which persists to this day, is understanding the application of distributed ledger technology to other problems and other business opportunities in financial services and elsewhere. So an enterprise track and a crypto track. And, you know, I think many of you have heard the story about accepting Bitcoin in the cafeteria. We've been mining Bitcoin since 2015, pretty much currently.

Frank Chaparro Apparently Abby had a miner in her office.

Tom Jessop Yes. If you came to our building, you would see, you know, ant miners, several generations old, you know, propping open doors and people's credenzas and stuff. I actually don't have one. You know, I don't know why, but no one's given me one. I'm a bit upset by that. But there's been a long history of innovating and learning about the space, and when we started the business, we thought about--in the start of 2018, we said, "OK, we've we have a collection of these assets, we've built a wallet, we have some rudimentary trading capability, we've built some interfaces and applications around some of these functions. What direction do we go?" And, as many of us painfully remember, that was sort of when the peak of the bubble was tipping over. And when we step back and say, "Which direction do we go? Do we think we go retail? Do we go institutional?" I think our view is that the institutional mountain is a little bit harder to climb, but probably at that time was a better representation, a manifestation of what we built and where we could probably apply that with the most effect. And so that's what we did. We started assembling people, some of these latent capabilities we'd built for internal use, and assembled that into the business, which is now Fidelity Digital Assets.

Frank Chaparro When was the decision made that it would be institutional versus retail?

Tom Jessop I would say it was March of 2018. Yeah, it was pretty quick.

Frank Chaparro So then once that decision was made, it was hiring, it was bringing on the folks to--

Tom Jessop Full steam ahead, building out the rest of the capability stack, thinking about our licensing approach, and thinking about the trust license in the state of New York, which we'd started thinking about way back then, and then thinking about how best to leverage the fact that we already do business with lots of institutions at Fidelity as to how we can sort of go to market with this new capability.

Frank Chaparro Did you anticipate when you announced the launch of custody, how crowded the market would be now in December 2019?

Tom Jessop Yeah, I mean, look, I think that, you know, custody is, I think, a base requirement. It's, you know, Maslow's hierarchy of needs. It's the base of the pyramid. It's like the thing you have to deliver for people to have a sense of safety and soundness, and then everything else evolves on top of that, whether it's trading or other services we build. So I think we knew that custody would be an integral part of anyone's offering and knew that it would be part of a much broader strategy and solution set for customers but really, where we had to start, and that was pretty obvious. I mean, look, competitive markets, the market's still quite small in terms of a AUM, and so it's quite competitive, but, you know, we are an organization that's been around for decades, we have a long term view in the space, and we're not necessarily thinking about the next 18 to 24 months, really thinking about three plus years in terms of the evolution of the space, and, you know, what it potentially means for financial services at large.

Frank Chaparro Well, before we get into the nitty-gritty of the services and offerings at Fidelity Digital Assets has, I think it's worth maintaining that higher vantage point. Look, you guys from your very beginning, as you alluded to, like to take intelligent risks and not follow the crowd. To what degree is Fidelity Digital Assets an opportunity to swing at bat and try something as opposed to building a strong, formidable business?

Tom Jessop Well, I think it's a combination of both. I mean, I think we're dead serious about being a significant player in this business, but I do think--and we're starting to see this as the market evolves--there is a benefit in being first and being a little bit ahead of the market. I think we've learned things even in the past 12 to 18 months. Just, you know, having that commercial mindset--building this business and having to say we have to wake up every day and generate revenue and value for clients--it forces you to really think about strategy in a way that if we were just observing and sitting on the sidelines and experimenting, I don't think we would've had the same opportunity. So I think in this case, it's very much about building a strong core business and driving that forward. But with every day that passes, we're seeing new opportunities to bring value to the ecosystem and figure out ways to bring more clients into the ecosystem, and that's been really exciting and in many ways validating as we wait for the, you know, the revenue to pick up in the commercial activity. And those are things I don't think we would have seen had we been waiting on the sidelines and deciding, "OK, is now the time to jump in?"

Frank Chaparro How much of it is a mix of trying to lure in current market participants who already have a custodian in the cryptocurrency market, maybe a Bitgo or Coinbase, and bringing them onto Fidelity's platform vs. trying to convince investors and traders who aren't in this market to invest and trade?

Tom Jessop Yeah, look, I'd say right now, it's both. I mean, there are definitely competitive situations that we're looking at. I think that over the long term, the value that we bring is really coming back to this bridge comment earlier. The fact that we understand the requirements of sophisticated institutions and we can bring capabilities and ways of interacting with the ecosystem that are familiar to them from other asset classes, for example.

Frank Chaparro Is it 50/50, 60/40..?

Tom Jessop I would say it's probably 60/40 in favor of new types of clients.

Frank Chaparro Interesting. Yeah. What do those conversations look like with the folks who are not already invested in crypto? Are you selling them on the idea of digital gold, on a hedge, on the investment thesis?

Tom Jessop Yeah, I mean, I can't say we're selling them on those sorts of things. I mean, I think by the time most of these institutions get to us, they've spent a fair bit of time thinking about their thesis, right? And they think, you know, we were talking earlier that, you know, we tend to be very impatient in this space. We've just been around, Bitcoin's been around since the white paper. And, you know, people live and die by the price. You know, is this the beginning? Is this the end? But over the arc of financial product cycles on Wall Street, it takes a long time. Credit derivatives were invented the late 90s, but no one really knew about them until the financial calamity in 2008. And so I think that, you know, there's a lot of work being quietly done behind the scenes. In some ways, we reinforce people's theses around why they want to invest in the space. In some cases, it looks like a venture bet. In some cases it looks like an asset allocation play. We're seeing more clients that are doing the math and saying if I allocate a little bit to Bitcoin, that helps my risk-adjusted return. We're seeing people that pursue the view on digital gold. There are some people that are trying to correlate network activity and wallet activity with price. And so we're starting to see this interesting dispersion of different ways that people think about the asset class, which we think is healthy. It's not monolithic. It's not every client saying, I think this is digital gold, and gold is my benchmark, and we think that's healthy. And so part of what we do is we help provide our own insight to affirm their theses. And then we obviously bring the capabilities and the trust and everything we're doing to ensure them that we would be a good service provider.

Frank Chaparro What is the largest client that you have? What are they? Are they macro fund or are they something else? Are they an exchange?

Tom Jessop Good question. We have a large family office. We have a large macro fund that has allocated to crypto. We have a number of smaller crypto dedicated funds. You start to see interest from traditional allocators who manage portfolios for other assets that we're talking to. So we've seen in the course of, you know, when we started this and we decided to go institutional in early 2018, it was primarily crypto funds and I would say quite early hedge funds and other folks like that. And we've seen a steady maturation in diversity in terms of the types of clients where we're talking to.

Frank Chaparro We recently saw a Bloomberg report. Was it today or yesterday?

Tom Jessop Yes, 70 crypto funds have gone out of business?

Frank Chaparro 70 funds have closed, in the long tail probably, so maybe not necessarily clients that would have gotten by your KYC or application standards. But with many of those types of funds shutting down, is that bullish, bearish for Fidelity?

Tom Jessop I guess in the short term, it's bearish. Those folks were potential customers, but I also say, like, you know, with the--in many cases there was a, whether it was the retail push in late 2017 or some of these nascent funds forming and then closing in the span of 18 months--it's just your classic, early-stage will they make it or not. I mean, the analog back in the days of the Internet were the startups that started running a business that no one remembers. So I think that some of the stuff in a way is healthy, but we don't really focus on them as much as we focus on the forward and the new business that's coming in. And again, we really think that the diversity of the types of clients we're talking to and why they're interested in the space is a better leading indicator of interest than the ebb and flow of, you know, early-stage crypto funds.

Frank Chaparro To what degree does Fidelity Digital Assets operate in a vacuum or not in terms of, and I think we've talked about this before, how something you know--when people think about Fidelity, they think about, you know, now zero-fee trading, congratulations--but what's really there is a massive wholesale 401k business. To what degree are you working with FAs, the folks pushing the wholesale 401K business and others to bring in new types of clients that the Coinbases and Bitgos of the world could never interface with?

Tom Jessop Yeah, I mean, to be honest, part of the Fidelity Innovation model is establishing new businesses, separately funding them and giving them the runway to actually go out and execute, right? You know, the challenge of innovating in large institutions is that these businesses are huge. They're monolithic, multibillion dollar businesses, tens of thousands of clients. When you're talking about something that is as early-stage and has more venture-esque characteristics, than some of our traditional businesses, we are funded and operate as an independent organization. Every client that we've on-boarded or that's in our pipeline are largely clients that we have originated ourselves. We will start to move into how do we leverage the other Fidelity channels to do that.

Frank Chaparro But that's a double-edged sword, though, right? Because when people think about the value proposition of Fidelity in the cryptocurrency market, they think about the assurance of the massive firm that manages or oversees seven point two trillion dollars. But they are two different legal entities. So as a crypto client, do I have the same assurances of Abigail Johnson being behind me as the 401k clients, the wholesale 401k clients or the brokerage clients, et cetera, et cetera?

Tom Jessop Yeah. So look, I would say that the firm is absolutely committed to what we're doing. That manifests itself by the money we're spending to build this business, by the support we've gotten from our cybersecurity organization as example, which alone probably has, you know, 10 times as many employees as, you know, a mid-sized crypto startup. And these are folks that defend and protect the broader organization every day and have decades of that expertise. The folks that handle compliance for, you know, millions of retail customers. All of that DNA and the expertise we have as an organization is part of our business. And then we bulwarked that with capital in the organization, insurance and other things. So, you know, we don't have many clients coming to us saying, is Fidelity committed to this? I think by virtue of what we've done, the people we've hired, the service we've developed, it's very clear that, you know, deep Fidelity institutional fingerprints are all over our business.

Frank Chaparro And that's how the clients are reacting?

Tom Jessop Correct.

Frank Chaparro Interesting. Let's talk a little bit about the politics around launching a new type of business like this. When you came on board in January 2018, were there any frictions from the traditional business which you say now are completely behind you and supporting you?

Tom Jessop I mean, I don't have a long answer. No. And the answer is no. There was almost no friction. Again, because the innovation wall at Fidelity is to incubate these things and develop them and over time decide, at some level of maturity, how did they federate with the rest of the organization. It wasn't like the innovation model on Wall Street in the late 90s with the Web where certain organizations would set up competing entities to leverage the web to compete against traditional businesses. That's not the model we have. The model we have is you know, you plant an acorn and it starts to grow. It starts to look like something interesting when you figure out over time where it is that it sits. It can remain independent, or it can be federated with some of the other businesses. We're not at that point yet. It's still very early.

Frank Chaparro Aside from me blowing the lid off the whole thing, what was the toughest part of this journey?

Tom Jessop It's actually a funny story because, still, it makes me laugh. So we, you know, we announced the business in October of 2018. And I think at the time we said we'd be live in early, early 2019. And in fact, we had our first client on the platform before year-end. And it was really funny because we were getting calls from people like, "Are you guys gonna issue a press release that you're live?" We're like, "No, we told you in October we'd be live." And you know, to this day, I think even as recent as a few months ago, people are like, "Are these guys live?" And I feel like we need to have like a plane flying over lower Manhattan, like, "We are live."

Frank Chaparro Well I think people are confused about whether or not you're live, what type of assets you guys  actually have available on the platform, the extent or the depth of the execution business. You know, I was on stage with Christine Sandler at the Securities Traders Association. She's in the audience. And I called you guys a broker-dealer and you stopped me in my tracks and said, no, not necessarily, or a prime broker, I said.

Tom Jessop We are not a prime broker, we're not a broker-dealer.

Frank Chaparro So let's clear the air.

Tom Jessop Got it. OK. We are live, unequivocally live. Yeah. So what we offer now is we offer custody. We also offer something that we think is pretty unique and that has really resonated with traditional institutions, which is what we would call execution services, right? So the way to think about this is for a traditional investor, let's say in a foreign exchange or in equities, you go to a screen, you put an order in for Apple, and within a matter of milliseconds, you get the best bidder offer across literally now dozens of exchanges and ATS's in the US and you can execute on screen. It's very simple. Doesn't work that way in crypto, right? You're an institution. You want to trade some semblance of the best price. You need to open up accounts at multiple exchanges, fund those accounts, monitor different screens, figure out where you're going to execute and then reallocate capital or Bitcoin depending on what your next trades might be. So what we've tried to do is bring an old traditional form factor where a client can sit down in front of our interface, they can put it in order, we have competing market-makers and exchanges, we effectively return the best bid or offer to the client, they execute on the screen. They don't need to know who the liquidity provider is. We manage the settlement between the client and the LP, and that's a very familiar, comfortable way for traditional investors to interact with markets.

Frank Chaparro And you have exchanges now in addition to electronic trading firms.

Tom Jessop We will have our first exchange on-boarded and hopefully in January.

Frank Chaparro Which one is that?

Tom Jessop Not going to say.

Frank Chaparro So, let's talk about the custody business. We talked about execution services, I mean that's fairly straight forward. There is not a lot of competition outside of maybe Tagomi. Walk us through custody, because at this point, if I get another press release of a firm launching a custody offering I am going to jump off into 4th street, because how many do we need? How many can the market sustain?

Tom Jessop I think the way to think about is not necessarily how many custodians do you need, it is custody is a basic function requirement in this space. It is the building block for other things, right?

Frank Chaparro So these other firms are launching custodians only, to then go do something else.

Tom Jessop I don't know. But what I would say is I don't think we view custody as the only value-added solution we can provide to clients.

Frank Chaparro So what's next?

Tom Jessop Well, its execution services. I think, again, you come back to the market structure of crypto. You talk about having to pre-fund everything. We'll start to look at ways to facilitate, you know, traditional prime services for clients bringing these paradigms that they're very familiar with in other asset classes into this asset class, right? But again, I think, you know, you have to think about again, if you're talking about traditional investors who have decided to allocate to this asset class, they're not necessarily concerned about the second- and third-order functionality. They just want to know that they can store their digital assets in a safe place, with an institution they trust, with the right controls around who gets to move the assets and some ability to execute at a price which they think is fair. It's that simple.

Frank Chaparro But right now, you still have to face the competition, even if there is this long-term outlook of how the business will develop.

Tom Jessop 100 percent.

Frank Chaparro With some firms coming online with new fangled technologies like NPC, which I can't even begin to explain or understand. And I heard through the rumor mill that Bakkt is giving zero fees for Galaxy and Tagomi. In the face of that and Anchorage and all these other firms coming online, how do you defend your turf?

Tom Jessop Yeah, so I mean, it's an element of, you know, you're making a bet with us that we've taken this institutional capability of other asset classes we brought that to digital assets. So without boring the audience, it's everything from how a client can affect transactions on our platform, who is authorized to do them, what are the control hierarchies that the client can establish themselves based on their business, and then, obviously, mirroring that into our business in terms that we process transactions. There clearly is a strong linkage between the custodiary services and trade execution. We've seen lots of customers fund in cash and buy their first Bitcoin on our platform, very seamless. We have done a significant amount of work in terms of getting third-party audits of our controls and our security framework, which resonates very well, again, with more traditional investors. And I think that approach to safety and soundness and looking like an institution facing off against an institution is effectively how we're playing. And, you know, there are gonna be clients where that does not appeal to them, and they're going to look at other factors, whether it's some sexy underlying technology or fees. And that's fine. This is not a zero-sum game just yet. We are still very early in this space.

Frank Chaparro When you have those conversations with clients, when you look back, what was, what might have been the toughest negotiation that didn't maybe work out? How did you try to convince them otherwise?

Tom Jessop Well, look, all I'll say is that, you know, we've spoken to a lot of people that are very price-sensitive, and several of them either changed their mind or came back.

Frank Chaparro What were they not satisfied with from the other providers?

Tom Jessop I couldn't tell you. I think it was the sense that look, we're providing a white-glove service. We've spent a significant amount of time and effort building it. It's first in class, best in class. And I think people recognize that. And, you know, there is value in what we do. All I would say is that I think competitively they have recognized that. And that's good.

Frank Chaparro It's definitely good for you, yes. Let's talk a little bit about you, Tom. Before we turned on the mics, we talked about your time at Goldman and how people have, articles have described you as "not the typical Goldman person," and you believe that to be true?

Tom Jessop Yeah, right.

Frank Chaparro Talk us a little bit about your time there, what you did.

Tom Jessop Yes. Look, I came to Goldman a little bit later in my career and it was, as someone who sort of came from outside the industry, I was sort of like, wow, what is this place gonna be like, you know? Because I had the same maybe external perception a lot of people do, just based on what you read in the press and such. And it was, you know, by far was an incredible place to work. I was there for 17 years, much, much longer than maybe I thought I would be, and it's an incredibly collegial, driven commercial environment. And I just--I am who I am, you know. And I'm easy to get along with. I think I do an OK job. And that, you know, that worked for me.

Frank Chaparro So what were you doing there?

Tom Jessop So I was part of the strategic investments team in the securities division. And we when I left, I think the team and probably got up to about a billion dollars and mostly fintech investments on balance sheet. And I think what's kind of interesting is we did a lot of market structure investing. So, you know, IHS Market, which is now a public company that started as a startup where, you know, Lance and Kevin and the team were effectively collecting CDS pricing data from banks and offering to synthesize that, normalize it and give them marks back and that created this flywheel of everyone and coming to market wanting to buy the data. But initially, it was more like we just think the banks need a service to price these things end of day. And that became a business. Trade Web was another one.

Frank Chaparro Sure, they just IPO'd.

Tom Jessop How do you facilitate more interactions between a salesperson and their client in a way that allows the salesperson to do more business? And, you know, that was a great 15-, 20-year story, but it was all things around market structure. We started exchanges, trading platforms. And the one thing that I constantly keep in mind when I think about this space is it takes time, and the best technology doesn't always win. There's a social aspect to this in terms of creating marketplaces that you have to be patient, and you have to create the right incentive structures and flora for people to come together and create value. And we saw this time and time again. For everything that we invested in that was successful--you know, some very successful exchanges, a Trade Web--there are many companies you've never heard of that failed. They may have had great technology, but they were not able to organize the industry in a way to actually move things forward. And I think to some degree, that's what we're all trying to do in this space, which is how do you create those sorts of preconditions that invite more people into the market? You know, we're doing that as Fidelity Digital Assets. We're having constant discussions with other folks in the ecosystem about how we can improve the market structure and create, I wouldn't call it utilities, but capabilities that in order to benefit everyone in the space and make things better for institutions, because on a 5- to 10-year view, that's what's going to drive adoption at scale in the space. It's not going to be a closed universe of crypto-native types transacting amongst themselves.

Frank Chaparro When you look at the market structure, I mean, you can't necessarily plug and play what works in equities, what works in fixed income or commodities and plug it into the crypto world, but when you look back at your time in the securities division of Goldman Sachs, what do you think during that maturation period the crypto world can learn now?

Tom Jessop I would say for everyone who is you know, living this like we are, it takes time, right? So I think that success is not necessarily measured in weeks and months. It's probably months to years. And being prepared for that, whether it's, you know, as a startup, the capital you raise or how you think about your strategy. I think that is important. I also think there's a recognition that as much as we want all of the newfangled aspects of what the technology brings, you know, you still kind of need to put a little bit of a traditional wrapper around that to get--.

Frank Chaparro What do you mean by that?

Tom Jessop I mean, the classic example, right? The nature of digital assets is they're still sovereign. You can self custody. So why should there be a custodian, right? Well, there should be a custodian for a number of reasons. A custodian provides lots of services other than just safekeeping keys. And it's also, in some cases what regulations require or what customers choose, right? And so I think that it's really finding ways to leverage the traditional and the familiar in order to bring new things to a certain group of folks that, at least in the early days, is gonna be really important about effecting this transition. And then one day we'll wake up and, you know, folks will be much more comfortable with this. They'll have better developed theses around these investments. They'll demand different types of services. But, it is--you know, I don't want to keep using this bridge analogy, but I think you just can't completely abandon some of these artifacts of traditional finance if you want this new thing to be successful.

Frank Chaparro When the block first launched, when we are in our infancy in October of 2018, it was a big month for us because you guys announced, Erisx came online. I think there are a few others that made similar announcements. These institutional forces at that time Bakkt, right? They were supposed to launch in December and never did. But it was a big moment in terms of the institutionalization of the market, and I think a lot of people thought it'd be a panacea for market structure and for price and it necessarily wasn't. It speaks to your point about how things don't necessarily happen overnight. As my grandmother said, Rome wasn't built in a day. But there are still pain points, and there are a lot of pain points. What are the ones that Fidelity can't fix right now?

Tom Jessop That we can't fix? Look, I think that's a great question. I mean, I think if part of your thesis around broader adoption of these assets in the institutional realm involves funds, which it does right. Different ways for folks to access or get exposure to the space. You know, the underlying liquidity in the markets right now would not support, you know, billions of dollars in new capital coming into Bitcoin as an example, right? So there's a little bit of a chicken and egg. And in fact, a lot of institutions would think, you know, quite frankly, think about that as a factor as to whether they're going to allocate in the first place, right? Which is, "If I buy 100 million a Bitcoin over the course of a few days, how badly will I move the market? If I need to liquidate quickly, what will that look like?" So I still think from a liquidity standpoint, there's a lot of work that needs to be done.

Frank Chaparro So what happens when a client comes to you with an order? Has anyone even come to you with an order anywhere close to that size?

Tom Jessop No. No.

Frank Chaparro What if they did? A fraction.

Tom Jessop Yeah. I mean, I think look, that's up to them. We don't facilitate the trading. They're not giving us the order, and we're not putting it into the market. We provide them with the tools to assess the market. But it's entirely up to them in terms of the size of their orders, how frequently they place those orders in the market. I think our hope and intention is over time that we can provide better tools to do that, trading algorithms and other things. But that's a great question. I mean, you know, for the clients that have executed on our platform--reasonably-sized orders, you know, they clearly chunk them up into smaller sizes, they may not execute all those orders in a day--I wouldn't say it's a black card, but, you know, the market's quite volatile, they have to have an idea when they want to execute.

Frank Chaparro The interesting thing to me writing about this space is the power--and I think this goes unnoticed--of market-making firms and electronic over-the-counter traders like Jump, Jane Street. Many of these firms are the companies that are getting all this inbound retail flow, not the exchanges. You haven't on-boarded an exchange yet. You think about Tagomi. The majority of their flow is going to OTC or electronic trading firms. Is that the future of this market, are the exchanges going to be left in the dust or will the market-makers reign supreme?

[Editor's note: Although Tagomi routes a large chunk of their flow to market making firms, it is not the majority]

Tom Jessop It's a great question. It's one that we think about a lot. I think it's too early to tell. I mean, I think they're probably folks in the audience that are more current on institutional equities than I am. But look, for a long time, you had a central limit order book, displayed liquidity in equities, but you still had folks facilitating large orders of OTC, right. And then writing the trades to the tape. And so you had this hybrid model. It still exists to someday. My guess is that listed equities have become more electronic and maybe less high-touch or less high-value block trading. I know there's something in me that says at some point it becomes looks more like a central mid-order book, but that's just more of a thesis as opposed to something that's supported in fact and careful observation. I don't know.

Frank Chaparro For the non market structure wonks among us, break that down.

Tom Jessop Central order book is, you know, buyers and sellers displayed price, depth of book, execute on the screen, and then OTC would be obviously trades that are not publicized, negotiated privately. I wouldn't say not a competitive market, but perhaps not as competitive as having lots of market-makers filling out a book on an exchange.

Frank Chaparro Fair enough. You can't--you know, we're not going to pull a crystal ball. But to put the question differently, why today is Fidelity routing to market-makers and not exchanges?

Tom Jessop That's a great question.

Frank Chaparro Are the market-makers just easier to work with?

Tom Jessop No, I mean, I think given who are clients or other institutions, they trade in larger size. I think right now there's probably better size liquidity with OTC providers than what's displayed in an order book. That can change.

Frank Chaparro Why do you think the market structure is in that place right now? What are the exchanges doing wrong maybe?

Tom Jessop I don't know if they're doing anything wrong. I mean, some of these exchanges are generating a significant volume. And I don't know if there's public data on how much the OTC desks trade versus a typical exchange in a day. But, you know, some of these exchanges are trading very large size. I don't think they're doing anything wrong. I think that it's kind of a preferred habitat thing. If you're a certain type of investor, you may be more attracted to trading in an exchange. If you another type of investor, you may be more interested in sourcing size liquidity over the counter. That's a construct that exists in lots of markets, still exists in Foreign exchange to some degree today.

Frank Chaparro It's interesting. And a lot of what's going on in crypto is being modeled off of the FX market. When you think about the next five to 10 years for Fidelity Digital Assets, what does it look like?

Tom Jessop Yeah. So the first thing I would say is, you know--and I don't wanna use the term bet--but we're focused intently on the technology and the types of assets that it can support. So our thinking is not strictly limited to the current set of digital assets or Bitcoin for that matter. When you think about an organization like Fidelity and you think about, for example, the types of transactions we intermediate today, there's certain asset classes that are probably reasonably well-suited to be tokenized and manifest ownership on a blockchain, lots of alternative assets. Increasingly, that's an asset class that our clients are interested in and they already own. And so there are interesting ways to think about traditional instruments and products in a blockchain format. For purposes of either, you know, more efficient distribution, automating certain types of corporate actions or other things, or even perhaps broadening the number of folks that are able to buy certain types of investments that only qualified purchasers, institutions and accredited investors can buy. And, you know--you're seeing this if you look at, you know, the public equity markets versus what's issued privately--there's been a slow and steady move for companies staying private longer, private securities issuance. And that's an interesting asset class when you think about the power of the technology. So I think that will, number one, be very customer-led in terms of their demands. Number two, thinking about our existing business and where we can leverage some of our capabilities and things other than the set of digital assets we have today. And most of all, make sure that we have the flexibility as an organization to pivot and course correct given how new and nascent these markets are.

Frank Chaparro That might put you directly in the sights of your crosstown fellow crypto firm Circle.

Tom Jessop I don't know. Too early to tell.

Frank Chaparro Sure. Good answer.

Tom Jessop The perfect noncommittal answer.

Frank Chaparro I mean, I'm sure if Jeremy was here, he would say something very similar. So what does that mean? Where do you see the first opportunity from that perspective in tokenizing assets that are illiquid? We often think about fixed-income assets as being--

Tom Jessop Yeah, I mean, you're starting to see it. I mean, I'm observing the same things you are. I mean, there have been--it seems like real estate, private real estate is an area of focus. You know, there are a number of banks thinking about bringing private instruments to market as tokens. It's a slow--I think the entire stock of outstanding security tokens and sort of non ICO stuff is paying less than two billion dollars it's still really tiny. But I think what, you know, you don't observe is that again, for institutions, it takes time to again understand, develop a thesis, check the box in terms of safety and soundness, regulatory compliance, other things. So there's a lot that's happening under the waterline that I think, you know, I wouldn't bet on this, but like, you know, I think we wake up one day and these things happen happening faster than we think, right? It just takes time. And so we're starting to see a little bit of that. I don't think--it's you know, it's a trickle that hasn't yet become a wave, but it's something we're watching carefully.

Frank Chaparro And so how do you position yourself for that? Are you hiring now to bring on people who can look at those opportunities?

Tom Jessop I mean, we have the people that can look at the opportunities. I mean, the benefit of having been in the space since 2015, is we've had, call it, folks with crypto experience. You know, back then they'd been in the ecosystem for a couple of years. And now, you know, they are pretty seasoned. And so, you know, part of what we do is obviously keep the business running, but we devote a portion of our resource, both product and technical, to think about prototyping and proof of concept and understanding how we can play as some of these things start to move forward. And then from a BizDev standpoint, we're very engaged with folks that are involved in this space and really just making sure we're monitoring what's happening and when it makes commercial sense to do so, to actually play a more active role in that part of the ecosystem.

Frank Chaparro But a lot of those new frontiers don't necessarily fall under Fidelity Digital Assets, they're--

Tom Jessop Well, I think in the long-term for any financial institution, I mean, if you believe in this, blockchain distributed ledgers as being a new financial fabric or whatever you want to call it, putting aside Bitcoin and Eth and stuff, I think you have to, if you're bought into that, I think you have to think about the eventuality that someday you wake up and your client says, "Well, OK, I own Apple stock, I own Bitcoin, I own this thing. Like, why can't I own a tokenized traditional asset in the same portfolio?" Well, you can because we have the capabilities to support that, and it should be completely agnostic to you when you pull up your portfolio and you say, "OK, you know, what's my total outstanding?" And maybe there's some risk analysis being done. It shouldn't be the case that the stuff that exists on a blockchain sits over here, and everything else you own sits over here, right?

Frank Chaparro What's the benefit, in your opinion? Not to promote our lovely sponsor, Cash App, who's a service by Square, which is run by Jack Dorsey. They've done a lot in the crypto market. I saw someone, I forget who it was, it was some crypto--

Tom Jessop Were you paid to say that?

Frank Chaparro No, I wasn't. I totally wasn't. A million Tron.

Tom Jessop Is that going to be edited out too?

Frank Chaparro So someone, some crypto charlatan on Twitter said if you really care about the digitization, tokenization, "crypto-ization" of the market, why don't you put Square's stock on the blockchain? And from my perspective, I don't understand the value add of that. The U.S. capital markets are some of the most liquid in the world. What benefit do I have as a person looking to buy 10 shares of Square, of that being on a blockchain?

Tom Jessop Yeah, okay. Now, that's a great question. I don't know. And I've thought this for a long time. I'm not sure that public securities and things that currently trade on exchanges are ripe for tokenization. I think that the market infrastructure is very well developed. You've got central clearinghouses, DTC. They do a very good job of running the markets and effecting settlement. I think that where you see the application of the technologies is illiquid assets, which are increasingly becoming a larger percentage of the overall pie of financial assets that folks invest in.

Frank Chaparro And I think that's a mark that so many people in the crypto market don't understand, necessarily. That you don't need to tokenize Apple because you can--

Tom Jessop I don't know what the incremental benefit would be.

Frank Chaparro You can own a massive position of it without moving the market, and there's tons of places to buy and sell.

Tom Jessop Right.

Frank Chaparro Let's focus a little bit about--you said looking forward, you'd consider listing new assets. It's just Bitcoin right now that you can buy and sell and custody. Not Ethereum, why?

Tom Jessop We, you know, we've done a lot of work on Ethereum. We intend to support it in the New Year. We're very led by our clients. And again, coming back to the fact that, you know, we're speaking to a lot of traditional institutions, Bitcoin is sort of like the gateway product, right? It's the thing that's got the, you know, perhaps the longest track record, the most observable data points across multiple exchanges around price activity.

Frank Chaparro Its opponents aren't going out to North Korea..

Tom Jessop That too. And so I think for us, like we're just very client-led. And I think that our clients are consistently and primarily interested in Bitcoin right now. It's that's simple.

Frank Chaparro But are there concerns around other things that are unique to Ethereum, the upcoming transition?

Tom Jessop I mean, there might be. But again, I think, you know, I think you just have to recognize that as an individual, you know--and I'm sure you did this and I did this back in the day, I found out what Bitcoin, I thought that it was cool, I downloaded a wallet and I bought some. Institutions don't act that way, it takes them time. And we did this survey--I think you and I may have spoken about this a while ago--but like, you know, the top three reasons why institutions were reluctant to get into the space. One is price volatility. The other one was lack of regulatory clarity. And the third one, interestingly, was lack of a track record, right? Meaning like, "How do I know that if I buy this thing, it's gonna be around tomorrow? Like what indicia of durability or longevity do I have based on the fact that the history of this asset is 10 years old?" I think many of these things solve themselves with time. But, you know, there are clients we're talking to now that have been thinking and looking at the space for years, over a year, not short months. So it's really that type of progression. There's a lot of things happening that are not necessarily observable unless you're speaking to these clients on a regular basis.

Frank Chaparro Will there ever be a wave of institutionalization?

Tom Jessop What, like suddenly, you know, the holders of 5 trillion in assets decide to pound the market with buy orders?

Frank Chaparro DE Shaw and the like come in and all...Point 72?

Tom Jessop I don't know if it's a wave, it might be a swell. I mean, let's pick another word that's not a wave. I think it's steady--you know, maybe it's more like a flood than a wave. Maybe it's just something that just builds and builds and builds. I don't know.

Frank Chaparro Tom, thank you so much.

Tom Jessop Thanks Frank.

Frank Chaparro Appreciate the time.


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