Alex Khomyakov: Hello everybody, and welcome to the Curiosity Code podcast. Today, we're joined by Karl Schlegel, a strategic catalyst who has helped funds, startups, and major ventures drive seven-to-nine-figure value increases through partnerships, M&A, family offices, and frontier technologies like AI and asset tokenization. Karl has advised on billion-dollar tokenization initiatives, navigated cross-border M&A deals, and moderated executive roundtables with leaders from Goldman Sachs, Amazon, Blackstone, and more. In this episode, you'll hear why most tokenization efforts fail. We'll explore what it actually takes to build a trustworthy, auditable system for real-world assets like gold, energy, and infrastructure. Karl breaks down the often-overlooked tech, legal, and data layers that serious investors, founders, and institutions need to understand if they want to operate in the next wave of finance. Karl, welcome to the show. It's a real honor to have you.

Karl Schlegel: Thank you, Alex. It's an honor to be here.

Alex Khomyakov: All right, so we're here to talk about tokenization, and we've been chatting a bit before the recording started. I’m not an expert in tokenization at all, so we want to structure the conversation so that it goes deep enough to be meaningful, but not so deep that it becomes overwhelming. At the same time, we want to keep it generic enough so that anyone can follow along. Let's start with a general understanding of what tokenization is and the role it currently plays in the world of finance. I know it's a very broad, open-ended question, but could you give us a high-level overview in just a few sentences?

Karl Schlegel: Yeah, sure, absolutely. It’s a great question. Before COVID, we focused heavily on documents—data systems of record existed, but priority was placed on paper documents. Municipalities, for example, were still 80% paper-driven. Then COVID happened, the world shut down, and suddenly there was this urgent push toward digitization—everything had to be online, accessible, etc.

Karl Schlegel: But that brought its own problem: garbage in, garbage out. What we’re really seeing with tokenization now is that the documents and data systems of record already existed, but we lacked a way to connect value back to the assets, to track the chain of custody and the cause-and-effect relationships in transactions. When people hear “tokenization,” they often think of cryptocurrency or assume blockchain equals Bitcoin. That’s not what we’re talking about here. Tokenization is about taking these different types of artifacts, using blockchain and digital infrastructure to connect the dots between different value points in a transaction or exchange of value between different parties.

Karl Schlegel: If you do this at the baseline fundamentals, the tokenization process supports business models that actually work. It adds value by incorporating data—not as a second-class citizen, as was the case pre-COVID—but as an active participant. That’s what this revolution is really about.

Alex Khomyakov: I have here in my notes that you've been involved in tokenization of in-ground gold. Can you tell us a bit more about what that was about, and what surprised you most about shifting from traditional asset structures to decentralized value models?

Karl Schlegel: Yes.

Karl Schlegel: Yeah, Alex, gold is an interesting one because gold and I, well, we have a history together. Years ago, I worked in commodities, looking at how to structure transactions and doing strategic advisory work. I also advised a foreign government, looking at how it's not just about having a gold bar—you also have the hallmark on the gold bar.

Alex Khomyakov: Hahaha.

Karl Schlegel: Then you've got the safekeeping receipt—the certificate that gets tracked and says, "OK, this gold bar is from this location, it's being stored in this vault," and so on. You can go and access that. But even then, there were many issues: safekeeping receipts had a nearly 40-to-1 ratio, meaning you were essentially playing Russian roulette to see whether you'd actually get a valid safekeeping receipt for a gold asset or not.

Karl Schlegel: I also consulted on a gold bullion stacking model—basically taking money, extracting gold, refining it, mining it, placing it in vaults in Switzerland, and reinvesting part of that money. Investors would literally see gold piling up in the vaults. On the other side, I advised on scan, track, and trace technology for the Kimberley Process regarding conflict diamonds. In that space, you had a process, GIA certificates, and a code engraved around the diamond’s girdle. The problem was, if you just recut the diamond, you’d remove that code, and then it was anyone’s guess as to what the diamond really was.

Karl Schlegel: Bringing this back to gold and in-ground assets—you can see that extraction-based models create a lot of risk. When you're pulling something out of the ground, transporting it, moving it from point A to point B, you face counterparty risk at every stage. What became fascinating was this: documents and data systems of record already existed. When you have a proven asset in the ground, you apply standards like NI-43-101 or the JORC standard. But really, it’s just a collection of documents, reports, consultant assessments, and tests from various established institutions.

Karl Schlegel: When you assemble this entire package, suddenly you have an asset that's considered bankable—if everything checks the boxes. So why is it that after five years, this report is no longer valid and the asset is no longer considered bankable? This question, along with my experiences in scan, track, and trace technology, really started to highlight gaps in how we validate and track real assets over time.

Karl Schlegel: This is what led to the idea: what if we could actually surface the value from the asset, but keep it in the ground? How could a reserve model serve to back real transactional exchanges of value in a way that preserved future potential while creating real-world value today?

Alex Khomyakov: Has this been implemented in a production environment? Because it sounds fascinating. I've been hearing about tokenization of real-life assets for a long time, but I don't hear much about real-world cases. Has the tokenization of gold actually been implemented by any companies, banks, or other entities involved in the process?

Karl Schlegel: Yeah, that's a great question. Yes, it has. In fact, one of the people I brought onto the Gold Plus Coin team I’ve been working with had his name on a patent for tokenizing and securitizing in-ground gold, and he had successfully done it. But the opportunity could go much further than where it currently stands.

Karl Schlegel: If you look at the insurance industry, it’s based on appraisals, risk, and an exchange of value that is generally determined by that risk. Underwriting plays a big role. The reason that art is so interesting to tokenize and create digital twins of is because insurers are constantly asking: how do we ensure that the asset truly matches the documentation? How do we ensure that none of the variables around that asset have changed?

Karl Schlegel: For example, if you store a piece of artwork in one location and then suddenly move it elsewhere—just like moving your car—your insurance company may adjust your premium based on the new risk assessment. Similarly, insurance companies rely not only on appraisals, but on vast amounts of documents, data, and procedures.

Karl Schlegel: This naturally lends itself to asking: what if we could reduce the surface area of the audit process and variables we need to check? What if we could condense this into something more manageable, allowing access and cross-verification across multiple databases? Now it becomes very interesting.

Karl Schlegel: Even in recent US government conversations, there's been talk of creating a strategic reserve—not just for traditional assets, but for crypto, Bitcoin, and similar things. One of the companies I worked with exceeded test expectations involving cryptocurrency data, regulators, and futures markets. The idea of pulling all this data together and moving it forward is already being explored.

Karl Schlegel: Applying that back to gold, the London Bullion Market Exchange (LBME) is very active in exploring gold tokenization. In Brazil, legislation has been proposed to tokenize gold to curb illegal mining activities by making it traceable. In the carbon credit space, there's a strong push to calculate carbon footprints relative to impact, output, and monetary value extraction. These factors are now being packaged together, largely via digitization, for better tracking and verification. So yes, real-world asset tokenization is becoming front-page news.

Karl Schlegel: Whether you're talking about the World Economic Forum or major banks and institutions, they realize this is already happening. In many ways, we were heading here naturally—with the proliferation of cell phones and IoT devices, we're capturing data about everything all the time. Now the question is: how do we use that data to better understand the world we live in and upgrade financial practices, insurance practices, and risk management practices to align with this data-driven reality?

Alex Khomyakov: What are the main challenges, in your opinion, to scaling this approach and technology long term? From what I see, the first challenge would be changing the mindset of all stakeholders involved in the process. Are there other challenges you see at the moment that prevent this approach from scaling up and being deployed across many applications?

Karl Schlegel: Absolutely. One of the major challenges has been the "my blockchain vs. your blockchain" mindset—the so-called blockchain wars. People get comfortable with a certain standard and say, "I'm on Ethereum," or "I'm using Solana," and many of these are just extensions or derivatives of Ethereum. The lack of standardization and interoperability has been a hurdle. Significant progress has been made, but true value exchange requires the ability to seamlessly move between different networks, just like we do with fiat currency.

Karl Schlegel: Think about cash: you can use it to buy gas, groceries, a movie ticket, or even a car. Cash is universally accepted as a means of exchange. With blockchain today, we often operate in silos, which prevents this kind of interchangeability. Another challenge is the prevailing transactional mindset versus building an interconnected ecosystem. Consider Google: it started by making a few cents on digital ads. Eventually, decision-makers realized even modest returns were worthwhile because of the cheap spend relative to impact. This mindset drove massive adoption.

Karl Schlegel: Similarly, we need to think about building a new world together. Imagine building a city: someone builds skyscrapers, someone else builds piers for boats, someone builds sewer systems. Each person contributes their expertise, and when you connect the pieces like Legos, you create a thriving city. But if each of us builds in isolation, refusing to collaborate except for one-off transactions, we miss the bigger picture—a shared mission, sustainable revenue streams, and long-term value creation.

Karl Schlegel: Thankfully, this mindset is starting to shift. The early pioneers chased quick profits because "perception equals reality" in markets, driving speculative cryptocurrencies that didn’t actually do anything or hold real value—just an attempt to exit to fiat currency. Now, digitization holds the potential to foster inclusion. For example, I served on the advisory board of a company in film production. In traditional setups, contributors might see their work in the final movie but receive no credit or compensation. Blockchain and distributed ledger technology offer a solution: storing contributions across multiple locations and stakeholders, ensuring everyone’s input is recognized and rewarded. This shift toward a contribution-based, value-exchange economy—rather than a purely transactional one—is fueling the current digitization evolution.

Alex Khomyakov: Yeah, my question now is: how close are we to that ideal world where most processes are digitized and assets are tokenized so that everybody can leverage this technology? And in your opinion, what major push is required to cross that line?

Karl Schlegel: Well, I think there's a mindset shift needed. People tend to think of it as either the Wild West or total regulation—as if it's freedom versus regulators. What we actually need is a balance. We need certain enforcement and clear rules of the road so that different parties can work together effectively.

Karl Schlegel: Think of something basic: driving on the right side of the road versus the left side of the road. It throws a lot of people off depending on which part of the world you’re in, yet this basic rule—followed consistently—keeps everyone on the same page. You know that in one country you must drive on this side, in another on the other side. Similarly, if we stop seeing it as freedom versus regulation and instead focus on where balance comes into play, things start to work.

Karl Schlegel: The goal shouldn't be to enforce as many penalties as possible or use enforcement as a kind of reverse tax to build infrastructure. That mindset limits innovation. Instead, we need collaborative frameworks that make things happen while maintaining necessary safety and trust.

Karl Schlegel: You also asked about hurdles. Beyond the mindset hurdle, there’s a confidence hurdle. Can people actually trust these systems? I was recently speaking with a colleague I'm starting to work with—the same person who rolled out the Visa gift card. Today you can go to Starbucks, CVS, Walgreens, or your local convenience store and buy a gift card easily. But once upon a time, that wasn't the case. When he launched the first Visa gift card, there was a huge confidence gap to overcome before people believed it worked and would be accepted everywhere.

Karl Schlegel: Prepaid gift cards are a good analogy. There was a time when people asked, "We already have credit cards, so why do we need prepaid gift cards? How are we going to handle this?" Similarly, we're now at a shift in confidence and familiarity with tokenization and related technologies. People are starting to realize this is here to stay and this is where we're heading.

Karl Schlegel: This is why regulators and rule-making bodies are important. For example, when I served on the Secure Payments Task Force for the Federal Reserve, it helped shape payment policies going forward. There were many stakeholders involved, and having all these voices at the table allowed progress to be made in a collaborative way. Confidence is key—as we move forward, people are becoming more comfortable and starting to see the potential of these systems.

Karl Schlegel: Now, regarding regulators, there’s another important factor: garbage in, garbage out, especially with data. Just because everyone agrees something is a good idea doesn’t mean it’s immediately practical. Look at CRMs—there are constant challenges figuring out what data to keep, what data moves the needle, and what actually holds value. Regulators and governing bodies play an important role in streamlining this process, defining what is quality data and what isn't. This makes the system easier to manage, rather than being like someone holding onto every receipt or piece of paper forever out of fear they might need it someday.

Karl Schlegel: I believe this is where great collaboration can emerge—between the public, governing bodies, institutions, regulators, infrastructure builders, pioneers, and organizations looking to leverage these advancements.

Alex Khomyakov: Yeah, I think it's also related to cryptocurrency adoption in general, and perhaps even to the shift in mindset across generations. What I mean is, five years ago I wasn’t using cryptocurrencies. It was more of a "geek thing" that only a small community actively engaged with. Sure, I knew about it, but I wasn’t an active user.

Alex Khomyakov: A few years ago, I started using cryptocurrencies myself, and every year the transaction volume I see going through this mechanism increases. I notice this trend across many businesses and entrepreneurs I talk to. My point is, as we continue to use technologies that we weren’t confident with five years ago, the level of trust grows. Over time, people who are not shaping legislation today will be doing so in five years, and at that point, confidence, adoption, and timing will align to really move the needle.

Karl Schlegel: Absolutely. I think another misconception is that many people believe blockchain creates trust. It doesn’t create trust—it preserves it. Blockchain isn't magic; it’s not a "trust generator." You hear discussions about zero trust, and people assume blockchain is the solution. It isn’t. What it does is preserve and record trust that has already been established.

Karl Schlegel: When we spoke earlier about contributions, the more you can factor people’s efforts and the actual value of their contributions into the equation, the more balanced the system becomes. In a globalized, digitized world, this allows us to start seeing how imports and exports align, how immigration patterns look, where pockets of innovation and goods movement occur. Policymakers can gain a clearer picture of resources—what’s available, what’s lacking, what’s needed—and how these factors affect different populations and even ethnic groups. This could ultimately evolve diplomacy itself, making it more data-driven and balanced.

Alex Khomyakov: Karl, how do you accomplish this confidence increase from a technical point of view? We’ve spoken about mindset and psychology. But what about the actual technology? Let's talk about the role of the proof-of-reserve model in the tokenization process. Can you elaborate on that and how you see it impacting confidence in tokenized assets?

Karl Schlegel: Sure, sure.

Karl Schlegel: Proof of reserve is an interesting concept. Essentially, it asks: do I have enough assets on hand to fulfill this transaction at a given moment? It’s like taking a snapshot of a bank vault at a specific point in time and checking whether enough funds are there to match ongoing transactions. However, proof of reserve doesn’t show how those assets were acquired or verified—it only confirms their presence at that moment.

Karl Schlegel: That’s why proof of reserve is now a big topic in tokenization discussions, but it’s not the whole picture. Proof of activity and proof of verification have been around longer and start bridging the gap between regulators, governing bodies, standards, and technology solutions. Data and the way it is collected, verified, and shared play a critical role here.

Karl Schlegel: Another key point is that we sometimes fall into the trap of assuming that what worked before will work moving forward. Research from Accenture and HubSpot shows that ecosystems—not just standalone technology—will be the most dynamic force shifting businesses in the future. Strategic partnerships, mapping value exchange between parties, balancing decentralization with centralized, reliable records—all of this creates a more trustworthy framework.

Karl Schlegel: It’s easy to say, "We want decentralization; we want to disintermediate all institutions." But that alone won’t build a new world or sustainable solutions. We need balance. We need reliable sources of truth—often referred to as "oracles"—that can be trusted. One of the patents I’m a co-inventor on, for tracking and analyzing worker performance on blockchain, was designed with two core elements.