Goldman Sachs is once again pushing for Wall Street's digital future.
The company named Mathew McDermott, a chief executive who led the investment bank's internal funding operations, as its new global head of digital assets last month, CNBC learned exclusively.
The appointment means the newest face of blockchain and cryptocurrency on Wall Street is not a starry-eyed bitcoin evangelist or a flashy founder, but a 46-year old-school veteran of the old-school finance markets. McDermott is replacing Justin Schmidt, an MIT-trained former crypto trader and quant who has led Goldman's Digital Assets team since 2018.
However, London-based McDermott has a radical vision for the markets: a future where all of the world's financial assets are based on electronic ledgers, and activities that today might require a wide variety of bankers and lawyers, such as initial public offerings and debt issues to a large extent be automated.
"In the next five to ten years there could be a financial system in which all assets and liabilities are resident in a blockchain and all transactions take place natively in the chain," said McDermott in an interview. "What you do in the physical world today, you just do digitally, which leads to huge gains in efficiency. These can be debt issuance, securitization and lending. Essentially, you have a digital financial ecosystem. The options are pretty wide."
Goldman's movements are being closely watched in blockchain and crypto circles as proponents have seized upon everything the bank does as evidence of the technology's wider adoption. The bank recently drew the ire of the Winklevoss twins, co-founders of the Gemini cryptocurrency exchange, on a report by their consumer and investment management department stating that bitcoin is not an asset class.
As the hype and media coverage of the room has cooled, there are signs of a growing belief among business executives that distributed ledgers including blockchain will have a real impact, according to a global poll by Deloitte. Enterprise applications were a ray of hope as funding for blockchain-related startups fell 28% last year from $ 4.3 billion in 2018, according to CB Insights.
At Goldman, McDermott expands its team and doubles its workforce with hires in Asia and Europe. It has also attracted talent from a key competitor: JPMorgan Chase's director of digital assets strategy Oli Harris has joined the bank, according to people familiar with the move.
Harris was involved in JPM Coin, the first digital coin from a major bank, which was unveiled last year and is designed to help disrupt the global payments industry. He was Vice President and responsible for Quorum, the Ethereum-based blockchain platform on which the JPM coin is based.
In his first interview as Head of Digital Assets, McDermott said he had short-term goals and more ambitious projects. As a pragmatist and competitive triathlete, he is concerned that his projects are both achievable and of clear economic value to Goldman and its counterparties.
First, it is about going digital the essential plumbing like repurchase agreements known as the repo market, he said. Banks and hedge funds rely on short-term funding for day-to-day operations, and the market typically has more than $ 1 trillion flowing through it every day.
"If you look at these securities financing and repo markets, they are ripe for standardization," he said. “There are many legacy processes in the tremendous movement of collateral that make it very cost effective. By leveraging distributed ledger technology, you can standardize processes to manage collateral across the system and you have a much more efficient settlement process when the real thing given is time accounting. "
In his previous position as global head of cross-asset financing, McDermott helped fund Goldman's trading activities by entering repo and other markets and issuing debt. This know-how prepared him for his current job. He joined Goldman in 2005 from Morgan Stanley.
Further out, McDermott is exploring how ledger technology can be used in the massive credit and mortgage markets, and even the possibility that trading markets might eventually migrate to the format.
However, building consensus with other banks, institutional investors and regulators is critical to any of these efforts. The technology will only catch on when it reaches a critical mass of users across the financial world. Industry consortia are the best way forward.
Given this approach, McDermott spends a lot of time talking to other companies, including JPMorgan and Facebook, the social network that recently updated its cryptocurrency strategy to reassure regulators.
He even hinted that a Goldman project involves working with JPMorgan, possibly on how the two banks' emerging technological endeavors might work together. JPMorgan created the JPM coin, pegged to the US dollar, to pay for transactions that will be migrated to the blockchain.
Goldman is also currently exploring the possibility of creating its own coin. McDermott said, "We are investigating the economic viability of creating our own digital fiat token, but it is still in its infancy as we continue to work on the potential use cases."
If McDermott is ever successful, the nature of an entire lucrative ecosystem of bankers, lawyers, and back office workers will be forever changed. He doesn't shy away from the implications.
"The honest answer, of course, is that any technological advance disrupts the existing status quo," he said. He cited companies like custodians who are actively committed to the future by investing in projects.
While McDermott wouldn't say if he personally owned a cryptocurrency, he had an observation that is likely to generate applause in the crypto world. Since the Bitcoin boom days a few years ago, the interest of private investors and wealthy investors has shifted to large institutions, he said.
"We have definitely seen an increase in interest from some of our institutional clients who are investigating how to participate in this area," he said. "It definitely feels like interest in cryptocurrencies is growing again."