Top 3 Global Law Firm Seizes First Mover Advantage to Tokenize Almost Everything with Blockchain

Audio-Only Podcast

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What Does It Mean to "Tokenize Everything" and What Are The Benefits?

David Berlind: I'm David Berlind with Blockchain Journal. I'm here in Davos, Switzerland, at World Economic Forum at 2023. Things are very busy here. We've got world leaders, business leaders having a very important conversation down the street, the World Congress Center. But all up and down the main promenade there are all sorts of venues and buildings that are being occupied by all sorts of technology companies where a bunch of conversations are taking place behind closed doors, many of them talking about blockchain, and one of those is going to take place right now in this studio. And I'm sitting here with Andrew Gastwirth, who's the Chief Innovation Officer for DLA Piper. Who and what is DLA Piper? How big are they?

Andrew Gastwirth: DLA Piper is a very large global law firm. We're in the top three. We have a footprint in over 40 countries worldwide, and we work across almost the whole portfolio of legal services.

Berlind: And just what do you mean by a whole portfolio of legal services for those of us who work with one law, a lawyer?

Gastwirth: Yeah. So very large corporate practice, real estate, commodities, securities. Really it's, we're a business law firm. That's really where our focus is.

Berlind: So your customers are enterprises? Yes?

Gastwirth: Definitely a very large component of them would be enterprises, companies of names you know, names that you use all the time. The interesting thing is also with enterprises; there are many organizations that use their products or services every day, and you've never actually heard about them. So it's very interesting. Also, in a global situation, you can have a company that has a very big footprint in one place and doesn't necessarily have it in another geography. So it's interesting to see which companies work across different areas. But we also have another component, which is very interesting, and I think it really feeds into Blockchain. We're going to talk about enterprise, but it's also important to talk about emerging growth and venture capital type of organizations. Because, for blockchain to be successful in the enterprise, there's going to be a component of that too. And we do have a very large practice in emerging growth and venture capital.

Berlind: So when I think of a law firm, I don't think of somebody who's working at it with the title Chief Innovation Officer. This sort of is an indication to me that as big as DLA Piper is, they're also serious about technology to have somebody like you in their midst. What is a Chief Innovation Officer responsible for at a big law firm like this?

Gastwirth: Yeah, so I'll just give you a little bit of history about myself and then I think it'll all kind of come together. First and foremost, I am very fortunate that I work at a law firm, really the law firm that's been the most progressive about innovation and really adopting technology to improve legal services. I was at Microsoft for seven years before coming to DLA Piper, and the last thing that my former boss at Microsoft said to me was, obviously you've heard of the surface tablet that Microsoft has. They said, "You're going from a surface tablet to a stone tablet." That was what he said to me. And then I arrived at DLA Piper and I had this brand new iMac Pro, and I said, "How do you like my new Stone tablet?" But the important thing was when I was coming over to the firm, I was specifically brought there to affirm that I knew a number of the other chiefs that had worked there.

So it was kind of getting the band back together, which is always a great situation. We all live and work in small communities, even though it's a big planet. So, it was great to be able to work with those people again. But the other part of it really was that the firm was very progressive in the way that it runs the firm. It runs it much more as a business, obviously, it's still a partnership, but having chiefs across different areas, working together, and really laying out a strategy and delivering those services was the differentiator that I wanted to see. But I was specifically brought there to identify with innovation new ways that not only could we deliver traditional legal services, but also build alternative revenue businesses that complimented the traditional legal services. So that's really what my job is. I own the IT shop, but I also own the innovation shop. And, those two kinds of work in a multi-generational life cycle together with obviously a strong user adoption program and making sure that we're addressing not just the needs of the firm but also generating value for our clients and their downstream customers.

Berlind: Technologically speaking. Because you could just be focused on providing information technology to everybody in the company just to optimize workflow and get things running administratively. But what you're saying is you're going to use technology to create new products and services for your customers.

Gastwirth: And along those lines, it should never be a discussion about technology. It should always be a discussion about business. What is the business objective here? How do we know we succeeded? Technology is becoming a more and more important part of that, but it's not, if you start off with a technical discussion, you're never going to get to address the business objective unless you're lucky and nobody wants to rely on luck in this type of business.

Berlind: But over the last two years, you've seen sort of a shift of all sorts of old-school companies suddenly re-envisioning themselves as a technology platform for their customers. It seems like you're kind of heading in that direction.

Gastwirth: And just to be candid, the law firm, the legal industry was not a very progressive industry. When I came in and I moved, DLA Piper was the first large law firm that moved to the cloud. And we have a very significant cloud footprint. In fact, our cloud footprint now is larger than all of the other firms put together. So that gives you some scope of how innovative we've been in driving it forward. But back at Microsoft, I would get no credit for moving someone to the cloud. It's when you get to the cloud. What are you actually doing with that, and how are you changing the way that you work?

And that's really what my team with the business has been focused on. What are the actual, we would call them digital hotspots. What are the problems that you're having that you need to address? And what do we do from a process re-engineering? Or re-imagining the business, digital transformation, changing the way you're delivering business, and then bringing the right technical solution to the table to meet those business objectives. And that's what I do on a daily basis internally, and that's also what I try to do, helping our clients and their downstream customers with solutions like that.

Berlind: So when did Blockchain first hit your radar, and what about it caught your eye?

Gastwirth: So I started my work with blockchain back when I was at Microsoft. It's always interesting to take a look back and see what you were working on. And as cutting edge as it might have been at the time, the tools and the capabilities have come so far from where they were that you know, look back and you realize if you want to talk about a stone tablet, that was really the stone tablet of blockchain. But when I came to the firm, one of the first projects that I worked on was a project called TOKO, and it's our digital asset creation platform at DLA Piper. We focus only on, let me start off by saying, no crypto. This is not what we're doing. We're tokenizing real-world assets, things that are tangible or have a demonstrable value behind them and bringing them onto a blockchain for which I'm sure you'll ask what are the advantages of that or why would we do that?

But the first discussion I have with any C-level person I'm talking with is, let's just get one thing straight. We're not going to have a discussion on crypto. We're going to have a discussion on meeting your business objectives. And I think it's very important to mention that just because Blockchain exists doesn't mean you should use it. And that's a really important thing is I'll have CEOs come to me or C-level folks and say, "Andy, I know I'm supposed to be doing something with blockchain. What should I do?" And I said, "That's exactly the wrong approach here. What's the problem that you're having in business? Or where do you think you could improve the business? And let's talk about whether a web three or a blockchain solution has a place in what you're trying to achieve." Not everything is a nail to your hammer, essentially.

Berlind: So I want to come back to two phrases you used: you said digital assets, and then you said tokenization. Let's take those one at a time. What do you mean by a digital asset? And then, I'll follow up with what is tokenization.

Gastwirth: So in what we're doing from a legal perspective, and most of the work that we've been doing with tokenization and creating digital assets has been in the international part of our firm a lot less on the US side. And that's really mainly from a regulatory standpoint. Certain geographies move faster than others, everything will eventually, worlds will collide. And this won't be something to even mention moving forward, but from a digital asset perspective, really what I'm focusing on is, let's go back to my mission at the firm, which is to complement the traditional legal services.

So if somebody comes to us and says, I have an office building that I want to turn into a digital asset or basically represent it digitally, we're doing all of the same legal work we would normally do. You have a real estate attorney, you might have a corporate attorney, [and\ you have different attorneys that are coming together as a team to basically put the deal together. Instead of putting them out onto paper, what we're doing is we're putting them into a digital representation of what they would normally do on paper. And the important thing here is that and this is called tokenization. Essentially, we're fractionalizing an asset, and we're creating a digital representation of those fractions.

Berlind: What does fractionalizing mean when you fractionalize –

Gastwirth: You're breaking it into digestible parts which have a value that when you aggregate all of the tokens together that make up that asset, they're equivalent of the value of that asset.

Berlind: Fractionalize a building. What's an example of that idea?

Gastwirth: Yeah, so let's say just for ease of math, let's say you had a hundred million office building, and you're bringing up a very important question here, which is part of the mission of what we were looking at. One is a building or an asset of a hundred million dollars is not a very liquid asset. It's a big building. There's a lot of things that go into maintaining it, [and] so on and so forth. And I don't know about you, and I hope the Blockchain Journal works out, but I don't have a hundred million to buy an office building. I don't have a group of friends to get a hundred million dollars to get together to do that. So, how do you drive liquidity for an asset like that? Well, one of the ways of doing it is if you fractionalize it and you have a digital representation of it, and you break it into small enough parts that you and I or anybody else can actually now invest in this type of asset, you have democratized access to being able to invest in these things.

And this is really something that is very important to me. It's kind of in my heart, or it's the reason I wanted to be involved in this, is that you see that it opens up the ability for so many people to have a different level of access to being able to invest and build wealth and do right by themselves. And if you can bring more people into the equation through that fractionalization, the more people that have access to be able to, and look, they have to be KYC, know your customer. They have to be AML. You can't get involved in money laundering. There are a lot of regulations that go around this, but you're going to create liquidity if you have more people that have access.

Berlind: So the business use case here is: I'm a developer. I build a hundred million office buildings, but I don't have a whole lot of great access to capital. Instead of going to one person for a hundred million, now I can fractionalize that asset and I can get the capital I need from investors who are buying their fractions. Is that?

Gastwirth: Yeah, and without getting too deep into the, I think really what you're looking at is two different sides of the equation. One is the asset already exists, and we want to fractionalize it and change the ownership model of it. The other one might be a raising of capital where there would be different parameters that go along with it. But certainly, that's another use of tokenization is to raise capital. And that could happen in many different ways. There could be debt restructuring, there could be securitization. And this is really not where I live. We have attorneys, and I'm not an attorney. I'm a recovering attorney. So that's best left to the attorneys. Certainly, nothing important gets done with a single person, nor should one person ever claim to be the expert in everything.

Berlind: And so, is there a token that represents each fractional part?

Gastwirth: Yeah, exactly. So what's really an important thing about this is that there are so many opportunities to improve processes and, in many cases, very slow processes, as well as remove intermediaries from the equation. So we have a saying, or not we, in general, there's a saying, time kills deals. So is there a way to actually start a deal or start a process and move through it more quickly because there are fewer intermediaries or you are able to verify that the information that you're looking at is the same as what someone else is looking at and that you know it to be correct? It's authenticated. It's verifiable. And that's really where a blockchain comes into play. It's immutable, right? You're storing information, and that information is written for keeps if you will. And that information is auditable. So you can go back and you can trace back to the ownership or see the provenance of where, whether it be a building, it be raw materials.

Berlind: Chain of ownership.

Gastwirth: Chain of ownership, and also importantly, what are the parameters of ownership? And there you can have a document that's hashed, there's cryptographically hashed, protected, but then everybody can look at that hash and say, "Oh, I know I'm looking at the document that matches this hash," so that this person and this person and this person can go ahead and sign a document knowing that everybody is signing the document.

Berlind: On top of which that token represents, let's say, a fractional, the fractionalized asset. And there's no question about the authenticity of that token married to that physical asset, which today, as far as I know, in real estate, is super problematic. When you think about titles and stuff like that, there's a whole nother cottage industry around that.

Gastwirth: And I would say also there are secondary markets with insurance. Certainly, there are a lot of opportunities for bringing it back to the enterprise. There are a lot of opportunities for very large companies who are involved in these processes today to do things differently and have a place or a seat at the table moving forward in a way that better serves their customers on both sides of the equation and also better serves themselves. Driving down cost, increasing profitability while still improving service and providing more for what people need, and protecting them properly.

Berlind: You talk about disintermediation, maybe collapsing of the, you said, what was the saying? The amount of time you'll lose the deal.

Gastwirth: Time kills deals.

Berlind: Time kills deals. So are you looking at, or are we relying on the automation capabilities that come with smart contracts on top of the blockchain to handle the disintermediation, to take what would normally be trusted parties out and just trust the technology to do that, and also to speed it up?

Gastwirth: So, like anything else, things need to be done properly. And I think what we've seen in industry when it comes to things like crypto or even certain blockchains, there have been problems. And, my view is if you're doing anything that has any inkling of being a financial system or processing something from a financial perspective or an ownership perspective, you better do it right. And I think the reason that people come to us for legal services when it comes to working with blockchains, whether it's coming and working in TOKO and tokenizing an asset, is that knowing that you have the backing of a global law firm that can bring the right people to the table. It's as simple as this. If you're going to be working in this space, you need to know that you're doing everything correctly. Nobody wants to get in trouble or worse. And certainly, nobody wants from a reputational standpoint to have a problem, which then discredits them not only in the new web three side of the business but could hurt the reputation of a legacy type of brand.

So it's really, really important to do that. Now to your question about smart contracts, I think that the future is certainly smart contracts. You want to be able to, and this does speed deals because when an action occurs, or a parameter is met, or an event happens, that triggers the next event in a smart contract. The problem or the potential problem with smart contracts is whether they are written properly. Do they actually represent what the agreement was and are they secure? And that also has another whole another industry around it where we personally use third parties when there are smart contracts involved to come in and do the reviews at a level that we're comfortable with, and our clients are comfortable with to know that they're going to stay out of trouble and more important that they're going to protect the people that they're doing business with.

Berlind: Okay. Now, you also mentioned that you talked a little bit about tokenization, and I've heard this phrase: tokenization of everything. Is that something that everybody who's watching this video should be looking for? Are we going to wake up one morning in 10 years and find that everything, all physical objects, not just buildings, but cars and whatever, are tokenized in the way that you discussed?

Gastwirth: Yeah. How long it takes remains to be seen. We've been involved in tokenization for about four and a half years now. Originally, we thought, "Wow, it would be great if we could be ready in a year." And what we realized was, first of all, we were not going to be ready for in a year, which was an incredible amount of hubris that we had brought to the table. And sometimes it's good to get a gut check with that, a dose of reality. But we were very fortunate in that if we had actually gotten to market sooner, we would be out of business now because we would've been too early to the market. So that all works out. But I do believe that we are moving towards a fully tokenized economy, [a] fully tokenized world. Yeah, I think that's a fair thing to say. You can even look at, for years now, [in] countries like Estonia, you have an ID, which is essentially a token.

It's the equivalent of a token. You have all of your healthcare, all of your taxes, all of your education, getting on the bus, getting on the train, the list goes on and on. It's all securely tied to a digital ID or what can be considered a token. So I very much think it's moving in that direction. And I think as you look to how you consume energy, and as electric or solar or other alternative energies become more prevalent, you will see that basically you are paying or you're buying or you're allocating energy in one direction or another. And all of that will be absolutely tokenized. I think the important thing is that it's done properly. It's done with oversight, and it should be done with the main idea in mind is let's eliminate fraud, waste, and abuse or mitigate it as much as possible. And I think that's a huge opportunity, certainly for governments and for corporations accordingly.

Berlind: You said you mentioned tokenizing buildings, fractionalizing the tokens, and all that. What else is DLA Piper getting involved in? What other assets are getting tokenized?

Gastwirth: Yeah, so TOKO, and separate out DLA Piper from TOKO. TOKO operates independently, even though they're owned by DLA Piper, really anything that you can consider property. So natural resources, mines, oil and gas, real Estate, fine art, debt restructuring, securitization in general. Even things potentially like racehorses or sports teams or sports contracts. These are all things that have an inherent value and can be fractionalized. And again, it's a great opportunity to offer democratization of access to be able to invest in the United States. The Green Bay Packers, they have an ownership model amongst folks. It's not tokenized yet, but it shows you that, okay, well, someone was able to do this on paper. So it can be done from a tokenization standpoint, the difference is it can be done in a much more secure way. And that's really the wave of the future. And an automated way, too.

Berlind: You're owned by a law firm, you're very familiar with all of the sort of economies that go around the world of compliance. You mentioned regulatory issues earlier. There's a lot of uncertainty when it comes to where things are landing. Some countries, as you pointed out, there's a little more regulatory certainty than there is for sure in the United States. So when you talk about securitization, that really must intersect that whole conversation that's taking place with respect to security and commodity.

Gastwirth: Huge conversation. And we have attorneys at the firm, especially in Washington DC that are part of our regulatory group. I have the pleasure of working with them on a regular basis. And many times it's just talking to companies about I'm thinking of doing something on Blockchain or our commodities team when we're talking about carbon offsets and sustainability. All of this stuff, whether it's a security, which a lot goes around that, and I'll just leave it at that. Or commodities, which is, especially from a carbon aspect, is becoming more and more favorable or easier to do. That's what the expert... The subject matter experts are the attorneys. And bringing the right expertise to the table, again, is the way to navigate through it. From a tokenization standpoint on TOKO, I think one of the biggest challenges is where is the asset? What type of asset is it?

Does the asset move? Is it a boat, or is it a building? Who can invest from what geographies? Has everyone been KYCed and AMLed, as we talked about before? And then, once you've solved for those parts, is there a broker-dealer? Is there a custodian? And is there a DLT or an exchange that you're going to put this token out to get them to the exchange? So I think what you're going to see is that companies and people know that tokenization is coming. And what they're going to do is they're going to tokenize their assets and represent them digitally, but they may not put them out to an exchange just yet.

They may wait and see and let the regulatory bodies become fully comfortable. And really, I think the regulatory bodies are taking the right approach. They want this to be done the right way. Because really when it comes to the overall economy, when it comes to, doesn't matter what country you're in, it has to be done right. There can't be a, oops, didn't work out this time, and we'll do it again differently. You're not going to get a second chance here. So I understand their reticence of moving more slowly to make sure they have all the bases.

Berlind: Well, that's actually a really good bit of advice for enterprises, right? Because they can dip their toe in the water. This can, hey, look, let's experiment with Blockchain and tokenize a bunch of stuff, but not really let anybody know that we've done that. And then when the time comes and there's more regulatory certainty, then they can say, okay, here's how we're doing business with these tokenized assets.

Gastwirth: Well, let's move that discussion ahead and say, don't worry about securitization or tokenization of assets. Look at how you conduct business now. And you do it in a web two world traditional databases. And look at the advantages. And again, this is if the use case or this fits the solution, it doesn't mean blockchain every time. But if you have something that you're doing in a web two world and you can gain the advantages of a DLT. You have, again, that immutability, certain DLTs, not going to even mention any names, but certain DLTs are much faster than others, have much better or much lower energy consumption, have finality in their transactions. These are all important things for the way enterprises work. If you have a DLT that will meet a solution, you can turn your enterprise solution that you have today. You can re-plumb it into a Web3 world.

You're leveraging blockchain. You're gaining all of the advantages of what it has to offer. And you're probably already working on removing intermediaries, providing better service, reducing fraud, waste, and abuse. These are things that matter. And again, when I go in and I talk to a C-level, I say, "Look, you have an opportunity here to take on a project that's going to help you in multiple ways." And I think this is really the guidance that I would give to the enterprise is you're going to sit in front of a board or shareholders on a quarterly basis talking about doing a project that's going to be very expensive, that is not going to drive optimization and profitability for your organization is going to be a very uncomfortable discussion. So let's actually, again, what's the business objective? Where is the digital friction or the digital hotspots in that process?

And now, let's talk about a solution. It May or may not involve Blockchain, but in this case, let's say it does, where this is going to allow you to show that I have built the business case, and this is the ROI I'm expecting. And then have those metrics which you can actually come back to the shareholders, back to the board and say, "This is why we took on this project. And oh, by the way, not only did we drive profitability here, but we also, from an ESG perspective, environmental, social, and governance, we brought along not just the G of really running the business more under a more controlled way and increasing profitability, reducing costs, lowering time. But also here were the environmental and the social benefits that we drove in it." And if you look at certain industries right now that are trying to create circular economies, look at the battery industry, you extract cobalt and lithium out of the ground.

It is very costly. It's very costly from an environmental standpoint. And many times from a social standpoint. What companies are looking to do is that material goes, and it must be refined and processed into usable material. It goes out to manufacturers, they put them in batteries, it goes to electric vehicles or whomever it gets used, and let's not put it into a burn pit. Let's actually now take that material and gain the ESG or the carbon offset advantage for doing this, and let's make the next round of this lifecycle 80% reclaimed material and 20% new material.

Not only is that more profitable for every step of this complex supply chain or this circular economy, but on top of that, I've removed less raw material from the ground. It was less expensive, but it's also less expensive from an environmental and social standpoint. So those are the type of solutions at a very enterprise level complex supply chains and circular economies that we're having discussions with large organizations that we work with. And those are the meaningful conversations where they realize, oh look, I can actually do something here. Forget all the regulatory stuff. All of this stuff I can do as a regular business process. And I think that that's the important thing to dip their toe in, if you will. Like you said.

Berlind: And well, Andy Gastwirth, Chief Innovation Officer at DLA Piper, that is just an amazing amount of advice that our audience is getting from a practitioner who's been doing it for so long. So, I want to thank you very much for joining us here in Davos.

Gastwirth: Thanks very much. Appreciate it. That was good to see you.