Alex Khomyakov: Hello, everybody, and welcome to the Keuristic Code podcast. Today, we're joined by Karl Schlegel, a strategic catalyst who has helped funds, startups, and major ventures drive seven to nine figures value increases through partnerships, M&As, 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 institutions such as Goldman Sachs, Amazon, and Blackstone. In this episode, you'll hear why most tokenization efforts fail. We will explore various aspects of tokenization and what it takes to build trustworthy and auditable systems for real-world assets like gold, energy, and infrastructure. Karl breaks down the 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 before the recording started. I am not an expert in tokenization at all. We want to structure the conversation so that it goes deep enough but not too much as to overwhelm, and also stays generic enough so that we can have a meaningful conversation. Let's start with a general understanding of tokenization. What part does it play currently in the world of finance? I mean, it's very generic and an open-ended question, probably just a high-level overview in a few sentences.

Karl Schlegel: Yeah, sure, absolutely. It's a great question. Pre-COVID, we focused a lot on documents, data systems of record, but we prioritized the documents. We were in a paper-driven world. Municipalities, about 80% of them, were still paper-driven. So after COVID, suddenly the world shuts down, leading to a movement toward digitization. Everything had to go online, etc. But then you face the 'garbage in, garbage out' aspect of things. What we're really seeing in terms of tokenization is that the documents and data systems of record already existed, but how are we now accounting for how to connect the value back to these assets? How do we track the chain of custody and the cause and effects taking place? When we talk about tokenization, many people think of cryptocurrency or equate blockchain with Bitcoin, but that's not what we're discussing here. We're talking about how we can take these different types of artifacts and use the blockchain along with digitization and infrastructure to connect the dots between different value points in a transaction or exchange of value between different types of parties. That's ultimately what tokenization comes down to. If you do that at the baseline fundamentals, you'll find that the tokenization process supports business models that actually work. They bring the added value and benefit of incorporating the data, not as a second-class citizen, as we saw really pre-COVID, but as an active participant. That's what this revolution is all about.

Alex Khomyakov: I have here in my notes that you've been involved in tokenization in 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: Yeah, Alex, gold is an interesting one because gold and I have a history together. Years ago, I worked in commodities, looking at putting transactions together and providing strategic advisory work. I did some advisory work for a foreign government, examining the importance not just of having the gold bar, but also the hallmark on the gold bar. Then you've got the safekeeping receipt, the certificate that accompanies it, tracked and saying that this gold bar is from this location, being stored in this vault, etc. You can access that. Already, in the gold space, there were many issues with safekeeping receipts at almost a 40 to 1 ratio. It felt like playing Russian roulette, spinning around to see if you get a safekeeping receipt for a gold asset or not. I also consulted on a gold bullion stacking model involving gold extraction, refining, mining, and vault storage in Switzerland, and reinvesting portions of the 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 Kimberly process, addressing the conflict diamonds. There, the process had GIA certificates and diamond codes around the girdle. Recutting the diamond removed the code, leaving it anyone's guess about its status. The reason I mention all this is to illustrate that extraction-based models create significant risk. If you are pulling something out of the ground, transporting it, then moving it from point A to point B, you introduce counterparty risks, etc. What became fascinating was: what if we could surface the value from the asset but keep it in the ground? How could that reserve model back the real transactional exchange of value while preserving future potential and creating real-world value today?