Battle of the Custodians: TradFi vs Crypto-Native | EBC11

Hi everybody. Thank you very much to to join us for I think one of the most interesting panels this morning. Clearly uh this uh this subject is a is a kind of convergence between uh trade and and defy and uh the adoption of uh of crypto and blockchain in particular in finance and um clearly the the case study will provide the trust for the better adoption. Thank you for my dear panelist. As you as you see they come from a different

area. Okay.

I think it's a little hard to hear

on different area from pure crypto and also some some trade file experience. Uh could you introduce yourself, your background, your position and your relationship with uh the the the panel Tatic Kelly, please?

Can you guys hear me? Okay, it's okay. I know this sounds a bit Okay. Um hi everybody. I'm Kelly Peterson.

I currently lead sales um at a company called Widen. Widen is a Swiss-based company that currently works with banks and brokers to be able to from a software a technology sauce perspective to help them operationalize their digital asset cryptocurrency um products and services to go to market. Uh I've been in crypto now about eight seven eight years uh and before that in in the banking traditional banking side. So looking forward to having the discussion with all these lovely men. Thank Thank you, Kerry.

Aleandro, please.

Uh, hi everybody. Uh, my name is Aleandra Fuzer. I'm here representing a company called Crypto Finance. We're part of the Doce Borsa Group. I'm also heading sales, uh, similar to what Kelly does over at Widen.

Um, as you can tell from the name, we're very cryptofocused and we're very finance focused. Uh so we are specifically a broker and a custodian incorporated initially in 2017 in Switzerland and licensed out of Switzerland and then as of 2021 acquired by Deutsche Borsa group the large infrastructure provider and we now operate in the European Union also with our Mika licenses out of Frankfurt and we specifically will focus on providing liquidity in the crypto market to banks, brokers, asset managers and other financial institutions and also in the topic of today's uh presentation custody services more recently as part of the broader group we also started offering uh crypto subcustody to our sister firm clear the very large CSD and of course the broader uh group strategy revolves uh around uh custody of crypto assets and a lot of that is achieved through the services of crypto finance so pleasure to be here

thank you Alandro Amarit please

hi good morning everybody I'm G Chamjit Singh I'm a partner at EY I head up digital assets for EY across AMIA um great to be here this is my fourth EBC I think um and uh I cover we cover as you can imagine risk rag assurance etc in this area to me personally custody is very close to my heart because I think it's a core to everything that we do uh if you don't do custody correctly and you don't keep people's money's assets safe then you know why are we really here So uh for me very looking really looking forward to this panel.

Thank you

and hi everyone. I'm Jerry Afentantis uh of Zodia Custody. That brings me G thank you very much quite nicely into the inception of Zodiac Custody which uh is owned by Standard Chartered Bank, Northern Trust, National Australia Bank and another a few other global banks. And maybe 7 8 years ago when the the futurism department of Standard Charted Bank were looking at blockchain technology looking at how that might affect financial markets, financial market infrastructure. They they realized that it was a very possible uh eventuality of the future and that the key element of that would be custody which is holding the keys to those assets safe.

uh and they looked around in the market to invest in a digital asset custodian to deliver to them the level of service that a tier one global bank expects from their service provider and they couldn't find one and that was the kind of the the incepting philosophy of Zodia. So we are a pure play digital asset custodian which means all we do we we never we we never touch tradfi assets. We only touch digital assets. We don't do brokerage which is slightly different from wellandro's firm uh at crypto finance. We just hold assets safe and we do that relatively globally from the UK.

Mika here in Europe, UAE, Australia, uh Hong Kong and Singapore. One thing we forgot to say is what the relationship is. So, we're somewhat competitors, we're somewhat partners, but we're also all somewhat friends. Great. Great.

It's a the concept of coopation, you know. It's a in one way competition, another way a cooperation. Great. And myself, Xavier Gomez, I'm a group chief operating officer of Vanselon. Vonel is a French fintech provide uh wealth management for ultra networks in Europe and uh in EU, Dubai and Abu Dhabi and in fact we provide a crypto trading uh tokenization of asset AWA and uh also um what did you say uh some financing so thank you for your introduction let's start we will try to to to explore the evolving of landscape of of asset custody uh and uh on different uh angle trust regulatory and also technology security and the market dynamic.

Uh can I can each panelist briefly uh define what custody means in their perspective domain?

Which one want to start?

Sure. Should I kick it off? Um, I think the evolution or the definition of custody has definitely evolved over time. I think custody, if you had asked me this question a couple years ago, would have been very much focused on just keeping private keys secure, keeping assets safe because at the end of the day, that is the one element that blockchain effectively introduces that wasn't really common in a trady. You know, you can lose a stock, you can easily retrace it.

blockchain finality and transactions and go from one wallet to the other might be much harder to actually get a hold of if the beneficiary wallet wasn't the right one. So I think it it was in the past just asset safekeeping. Today it's increasingly so especially in our institutional space I think abstracting away a lot of the complexity of managing keys. Uh this is especially something that Jerry's company and mine do quite a bit. It's effectively enabling access to an asset class without forcing the value chain downstream to have to deal with operations and complexity that at the end of the day doesn't really contribute to their top line and their profitability.

No, I was just going to I was just going to add to that from a widen perspective. We're not a custodian. We're a technology company that works very closely with custodians. So we're custody agnostic when it comes to um web 3 crypto native um custody and the two type when we speak with banks around the world and we speak with brokers we're seeing the way that they're thinking about digital asset or cryptonative c custody really in two ways um one way is around this subcustody model with Alisandra which Aleandra mentioned earlier um which basically means you're sub custodying out that that risk basically to a regulated or qualified custodian there's a lot benefits with that. Um, when you think about using a qualified custodian because they are basically managing the assets onetoone, they have a fiduciary responsibility.

They have the dependency operationally for you to lean on them and basically you're you're leaning on their custody operations and their custody responsibility and trust factor there. The other side that we're seeing a lot which is very very competitive to that subcustody play and you're seeing different custod regulated custodians move into this more technology core platform offering is around custody tech. So these companies may uh if it's a technology platform they will not typically have a trust company or some sort of licensing that allows them to have that fiduciary responsibility. But what these companies are doing is they're allowing you to take on that custody risk risk in crypto. So you're taking on acting actually as the fiduciary as the qualified custodian which might mean you need to get extra licensing there and there's a dependency on the key management side for that company be it you know a fireblocks or or a crypto finance that has a technology platform not their regulated platform or zodia I know is also looking into that or has maybe launched that um u a technology side so these are the two different ways and I think it's less about which one's right or wrong I think it's more about your custody philosophy as an organization.

Gary, I'm interested by your your definition because you you you you are a member of the big group, a traditional group, standard and chart red with the spin-off Zodia.

Sure. So maybe I'll answer the question by continuing the story. Uh the philosophy was to rate to create this digital asset custodian that would represent everything that a a service provider to tradi financial institutions uh would do. And so we constructed Zodia was constructed in this very regulatory compliance riskmanagement uh prioritized way and we entered the market in 2019 2020 thinking that this bank-owned bankra custody solution would result in you know stampedes of clients knocking down the door and what happened nothing happened at all. Nobody was interested.

And so to answer your question, Zavi, what a custodian is is fundamentally an entity that gives its clients confidence that their assets, the keys, the ownership rights to their assets are held safely. But unlike with gold where you can stick it in a vault and, you know, surround it with the threat of violence and people typically won't come. With digital assets, people who hold these assets want to do things with them. And that's the part that we had originally miscalculated. And that's what I guess a digital asset custodian today needs to be which is you know why crypto finance are a very successful firm.

They combine the custody element with the brokerage element and they appeal to a certain client base and they do that you know amongst the best in Europe. Zodia has taken a slightly different approach. We don't have an integrated execution brokerage trading element. We looked at the market and realized, you know what, let's rather than trying to be the best at more than one thing, let's become just the best at custody and let's integrate across the spectrum of what people want to do in digital assets with best-in-class service providers from from from all the other parts of the business. So, execution, staking, um other treasury management tools, uh you know, quantitative trading and and facing exchanges.

So the way that we envision uh what you know a gold standard custodian should do is just keep assets safe in the best possible way but at the same time offer clients the ability to frictionlessly consume any kind of service that they want to consume within you know the digital asset ecosystem. Voila.

And I think to add to that I think a couple of points occur to me. The first point is I actually think that that the the difference between tradfi and digital assets custody is going to start to disappear and I say that because of tokenization and the way real world assets are becoming tokenized to me. I think in about 5 years time we will not be talking about crypto custody, digital asset custody and traditional custody because I actually think it'll be one because you don't want to have be it an institution or retail player separate pots to put stuff in, right? I and I use the word stuff in in a very loose sense. You want to be able to put what you have in in a safe place.

You want to know that it is safe so that you don't have to go digging in a in a dumpster when you forget your keys or when you accidentally throw a hard drive away, right? You want to have it in a safe place so that you know somebody else is taking care of it. You know that they have a fiduciary duty to you. You know that they are regulator to make sure that it is there. And if it's not there, you have a claim and you can then use that wallet to do anything that you want to do.

That to me is actually the environment that we should be thinking about and we should be going towards. But obviously it'll take us time to get there because for the reasons that Jerry really well articulated as well. I I remember doing custody audits when it was gold. I I used to go down to the vault in the at at HSBC and actually count the gold bars that were owned by the gold fund, right? I I remember doing that.

Uh and it's the same vault that he used for Goldfinger, right? And now it's a hotel, by the way. Uh you know, it's it's not there anymore. It's it's it's a hotel. You can go to the bar.

But um the the the concept of custody then, which was the key to the vault, is still the same concept we have right now. Right? Those days, you just worried about somebody stealing that physical key. Now you worry about somebody stealing that electronic key. Uh and just like in those days somebody as you said Jerry you had your threat of physical intimidation or whatever so that people didn't steal that key.

Now we try to do different things with the with the virtual key to try to stop people from effectively still getting to those assets. But to me what I think we should always remember is the core risks that we are trying to actually achieve and the core benefits that we are trying to achieve is actually the same. to me is how do those actually now manifest and they might manifest in a different way and we need to be cognizant about that about how we bring that as a service to the industry but your point is very interesting because it's a I think it's a challenge to manage the keys for uh customer and for corporate this is not the same organization not the same challenge today most of you If I'm not wrong, you address to corporate B2B and do you see um a potential revenue model stream for to address directly to B2C? We can't uh we're an institutionally institution only facing business. uh there are intermediaries and ultimately what we do is similar again to Alessandra and crypto finance it's a B2B toc so we face the institutions that have that have you know a client base um to to Je's point about you know digital asset custody and trad custody kind of merging into one I think fundamentally you know when we talk about crypto it's you know it's not just Bitcoin Ethereum and and all the other tokens it's real world assets that tokenized.

You know, we have a client, they've tokenized uranium. What does that mean? That means that they've created a way, a digital asset that is representative of stock, a physical uranium that's held in a warehouse. Turns out that this is probably the best and the most frictionless way for any investor to access the asset class of uranium, right? So fundamentally what happens in the future is that platforms like Robin Hood, Revolute, N26, whoever it might be, they think, you know what, we have a demand from our retail investors, the guys that people like Zodian, crypto finance service to, you know, to to consume uh or take a position in a particular asset class.

For now, let's call it uranium. And there are a number of products. You can have an ETF, you can you can somehow uh manage futures or you can buy this this tokenized this tokenized asset. And fundamentally the the retail user at the other end of that transaction doesn't care about what the asset is or how it's held. All they care about is getting exposure to what they want to get exposure to.

So ultimately what you'll you'll end up seeing is this kind of merging of tradi and defi and all these terms that we we talk about differentiators today. Ultimately, it's just finance, right? The the guy want somebody wants to consume a certain asset and however that asset is constructed is completely irrelevant to him. And if it's created on the blockchain, then the Tradfi institutions will have to partner with a digital asset native custodian who can, you know, do 247 settlement, be, you know, constantly operationally active. if if I may add.

So I think it also comes down to picking the battles. So yes, we're all representative of B2B and I think part of it is because we kind of started there and addressing the consumer at the end is a very different type of business, but also because we probably all believe that there's going to be a different or the market is going to evolve where the consumer today and I'm talking about the natural person like the Alessand the Kelly that's walking down the street will ultimately get exposure to these assets differently from what they have the past 10 years. Uh we work a lot with banks. Now I could go to the banking clients and try to get the next 10 million retail customers in Spain or I can just go to a bank enable them to offer the service to those 10 million clients they already have. the acquisition cost it's night and day right so I think more and more the value chain is going to develop a lot of these traditional financial rails represented by the banks uh asset managers product issuers so on and so forth will effectively simply add to their portfolios or their service offering these new asset classes these new blockchain based products not just crypto products and all of a sudden if you are ultimately servicing those institutions you're able to capture the flow on one hand and the AUM or the AU on the other.

Anyways, and this is also true of cryp exchanges by the way and I think increasingly so you see more and more cryp exchanges um launch institutional versions of their offerings because they know that they will be losing some of the retail customers but they still want to capitalize the flow and made with a slightly smaller margin upstream. I think I think from Widen's perspective I mean where I I I mentioned before where the we're a technology layer for for broke for basically brokerage crypto trading crypto brokerage use cases. We work with banks and brokers directly and the there's different use cases that those banks and brokers deploy when it comes to crypto brokerage. We see both retail use cases and we see institutional use cases. And I think for both of those use cases the our technology applies but there's a lot of different considerations that each of those banks going to market need to consider.

So on the institutional side you see a lot of banks now doing more um prop trading kind of capabilities for example or they might be taking on more orders of magnitude from their clients looking at RFQ orders. How do they structure their custodial setup right? Is that risk kind of brought in house through maybe a Fireblocks technology platform or a Zodia for example? Um how do they actually do that downstream reporting? If there's tokenized products, does that actually come into play in terms of um how you think about the that kind of programmatic layer of technology?

Um on the retail side as well, the orders are are much smaller in magnitude, right? They're much smaller clips. So how do you actually service that? How do they manage that risk associated with that? How do you report back to those individual consumers?

And how do you set up custody models? Be it say an omnibus structure versus like a segregated client account structure um for maybe an individual versus maybe an institution. So there are a lot of different considerations that play I think in terms of when you're servicing an institution and a retail client. And I think the market is converging more and more. And I think the technology like these guys said exchanges started off in retail.

They're moving into institutional use cases. A lot of us started off at institutions. We're also trying to adapt to ensure that we can kind of manage that convergence. So I think I think a lot of this um to Jeet's point is is really coming to a head and I think custodians more and more are going to be looked at more as um less of just a kind of manual custodial gatekeeper in a way. I think they're going to be looking looking to become more and more as almost an endto-end operator in terms of a trade life cycle.

And you can almost think of them if you move further further down into tokenized products into programmable money, you can really think about them almost as some sort of um programmatic validator um in terms of how they start to operate. So I think that's going to come, but that's we can talk more about that and I'm sure you have some questions around DeFi and what all that looks like. But those are some of my thoughts.

Thank you. Uh from regulation, what are the regulatory expectation for custodian from in trade fight and crypto and what is the impact on innovation because regulation usually in particular in blockchain and crypto is very criticized in Europe and US. What is your position on that?

Well, I'm I'm happy to start on that one. if if it's useful. I think I think what is when it comes to custody especially when you're talking about the institutional space lots of institutions want regulation to keep to give them the comfort that they are that they want that they have or that they need sorry um but as you said that comes with the innovation challenge and how do you balance that I think what I have seen and definitely seen across many different jurisdictions if I think about Hong Kong if I think about Singapore for if I think about Mika in the EU, if I think about uh Abu Dhabi and and and Dubai in the Middle East as well and then more recently in the UK and the US, I think what we're actually seeing most firms do is what we've already touched on in this panel, which is actually take best practice that already existed in the trady space and then mapped it across, right? mapped it across with some sensible principles and sort of said look we know this is what we need to do in the transpire space to give comfort to our users to our customers let's think about how we map that across and in most cases actually the regulations have have have been um have not been stopping them from doing so you know for example I think when this first came out we had some regulators hard coding uh hot and cold wallet percentages if people remember uh a lot of that have now been like you know they they've they've they've changed the rules, they've softened it, they've said, you know, look at how you set up yourselves, look at your risk framework. So, I think regulators are also on the journey with us on this.

But I actually think that um it, you know, if you read across the principles um we actually seeing most firms get to the right answer. The challenge I think that we are going to have though is on DeFi because I think DeFi changes the game a little bit more. And what do I mean by that? I think you know in the current setups it's still quite easy to know who owns the asset, who owns the digital asset, where it is at a point in time. But when you start to get into um you know maybe not simple staking but more complex DeFi scenarios and situations it is getting far more difficult or at least strugg we we struggle and a lot of other firms struggle to know where is the asset who owns it at a point in time.

What happens if any of those firms go bust during the merrygoround? Right? We're on a merrygoround. It's moving. While it's moving, it's all fine, but if somebody hits the stop button, right?

Do you know are you clear about what what your asset is? Do you know who owns it? Do you know what rights you have over it? And do you know how can you get it back if you need to or is it lost? I think that though we we we we have a lot of work still to do.

Maybe just just to add and double down on uh on what was said. So a lot for for for certain features or for certain jurisdictions, there's actually not much new which regulation has addressed. For example, in Switzerland with the DT act of 2021, if you were a securities firm or a bank, all of a sudden you could offer crypto services, trading, custody, etc. without doing that much additional work, right? So nothing too new.

Having said this, there are certain service lines, especially in the post trade side, staking to name one of them, which were not regulated. So all of a sudden, the guidelines and the caution level or the guidelines were absent in the beginning. You know, this was 21 and 23 there was a circular in December that was published. So it became a lot clearer. Mika is instead a little bit farther behind on the staking side which is regulated under the custody front kind of uh but there was a degree of comfort.

Now that comfort though wasn't extended to everything. Uh as a custodian oftentimes we also treat crypto assets are all the same or blockchain based assets are all the same because technically they actually are. If I have a tokenized money market fund uh or a tokenized product natively on chain or some sort of um token standard that is regulated on Mika, it's actually the same kind of private keys, the same kind of HSM NPC setup behind the scenes, right? But all of a sudden if I'm in Europe or not only in Europe but I've got Meek on one hand, I got Miit on the other hand, right? So it becomes the barrier to entry now especially has increased quite a bit.

Now we've been around a long time. Uh Zodia has been around a long time. Our parent companies have been around longer than all of us have been on this earth. Right? So that definitely does come with some advantages, but it does stifle to come to your question as well innovation.

I think when it comes to the slightly smaller players, uh, a lot of what we're trying to do is kind of now squeeze a lot of these asset classes into traditional rails as well. Uh, I think some of those rails will evolve, but it hasn't really been the case too much today. As an example, and then I'll end my thought. um open loops whenever you need to transfer money from left to right crypto asset from left to right generally especially if there's a CASP or CASPs involved requires travel rule information to be exchanged now in Trafi it's relatively straightforward swift is an option of doing so but guess what if you have assets at zodia or a crypto finance and uh you've got an end customer which wants to move them out generally they're not going to move them to a meta mask wallet on their phone, they're going to move him to a crypto exchange for whatever reason. Now, how many cryp exchanges are on the Swift network?

Not too many, right? So, even though regulation has come in and has provided additional guidelines, sometimes it still lacks a degree of standardization in how things are done. Uh, which now many different players in the market are obviously working on, but there's still some question marks left. I'm going to maybe answer that that question in a more basic in a more basic way that is more aligned with my primitive my primitive Greek roots. The essence of any market is liquidity.

It's very simple. You can have the best asset class in the world. If there's no liquidity, everyone goes home. So regulation is ultimately an unlock to liquidity. The largest holders of liquidity in the world are institutions.

Institutions have much more to lose than to gain by entering crypto. Therefore, they won't take the risk unless there's regulation, there's a a rule book, there's a a playing field, there's rules rules to the game to enter that market. So, from that perspective, regulation phenomenal. Then, how does that like trickle down to innovation? Quite simple.

Today, we're seeing global traditions issue fixed income securities on chain, settle trades onchain. You have NASDAQ applied to the SEC to be able to issue every single company on the NASDAQ in tokenized fork. That's like irrevocable proof to the cryptonative community, those guys who have been in existence since 15 years that this crazy thing that they've been building on the sidelines of the world and they've been ridiculed for 15 years is actually working. And like the mainstream financial system is adopting the things that these people have created behind the curtain so to speak or at least the curtain of you know traditional finance. So what does that do?

That irrevocable proof gives them an enormous amount of confidence and what's the right word excitement to continue to build. So are we going to see under the rules of Mika which is the European regulatory framework uh massive innovation? Probably not. But we're going to see that innovation in other pockets in the world. And like with everything, the big institutions will cherrypick the best solutions, the best services, the best of everything.

They will urge their regulators to incorporate the ability for them to be able to consume and to perform those services within a regulatory compliant framework and then regulation will keep up. So ultimately I think it's just a very it's a it's it's a it's a symbiotic relationship and a and a very pleasing development of the market to watch from from from our side.

Thank you. Uh from risk and resilience uh perspective what are the biggest risk uh facing uh custodian today from point of view. Uh so I I think custody and an an institutional grade custody has been around now long enough where operationally things are pretty smooth. They've been ironed out pretty well. Now we can talk about quantum computing but it's not like technology to defend yourself from it.

Blockchain protocols etc et will stop evolving like technology will evolve and I can assure you we're talking about a 4 trillion asset class. If quantum computing is really that big, I'm sure everything else will get impacted before crypto gets impacted. There's not that much money in crypto compared to Trafi. But that aside, if I may, uh probably one of the things that are keeping up a lot of the CFOs and CEOs in the custody space today are not so much on the security side, which of course is always important, but it's also on making sure that the service lines don't get commoditized too quickly. And custody is a high heavily commoditized um ecosystem in the in the traditional sense and it's also increasingly so in the in the in the crypto space and not to hijack the conversation but of course with the approval of a lot of the ETFs in 2024 in the beginning of the year all of a sudden the margins went down to nothing right so you start seeing crypto products which are on the market at 18 21 basis points maybe even a little bit less and so all of a sudden the custodian behind the scenes need to continue making money to keep on investing, keep on innovating, keep on providing those ancillary services and obviously without moving away from security but at the same time uh you know they still need to get the assets to come in and they still need to make the money to keep on investing into the future.

Um so I think that is one of the things that is actually very relevant today and that is why you know growing past just being a pure custodian to being interconnected with other custodians other liquidity providers middle layers like the ones that widen provides um all of a sudden make the news a lot more than just providing secure custody for a new asset uh or potentially developing an MPC algorithm that's a little bit more refined or getting an additional certification uh you know FIPS whatever it might be called on the HSM front I'm going to answer it again more basic you always give the the the better answer I'll give the more simple one

security obviously we all know that fundamentally we're in a new asset class which is highly volatile with infrastructure that hasn't stood decades of of of of testing so like we saw when was it a week ago with the the massive liquidation event. One of the biggest concerns for all of the the the service providers in the industry is just that the platform is robust enough to handle these massive volatility events and and you know people might say well that's a ridiculous idea but Binance went down uh for a custodian especially you know like ours which is you know traditional financial institution facing reputationally if your platform goes down in a in a stress scenario it's pretty certain that your clients are going to leave pretty fast. So optimization and operational resilience of the platform is I think something that isn't really spoken about so much but it's relatively key. Then I I would completely agree. I think we we haven't yet woken up to the fact that this is these these events remind us that it's a 20 24/7 365 world we live in.

We don't have weekends to clean things up. We don't have an hour at midnight to switch things off

and volatility events always happen on Friday night.

Absolutely. It always happens on Christmas time or New Year's or weekends or everything else, right?

When Trump is awake.

Pardon?

When Trump is awake.

I can't possibly comment. But you know the the the point for me though is it that uplift. I completely agree with you. Um I think the industry realizes, but I don't know whether they actually properly have got the memo. And I'll be I I'd love to hear, Kelly, from your perspective, given you work with a lot of different brokers and and and crypto custodians.

How do you how do you guys think about this? I think for a lot of the large institutions that want to get up and running in crypto, it's actually they come to us, they choose to work with us to run their operations for crypto brokerage and then halfway through that um delivery time period and that implementation time scale. They come to us and they think what if we want to do this 24/7. We don't have um an operational team that actually handles that over the weekends. How do we think about that?

Can we outsource that to you? You know, can you what do we do? Um and and so a lot of the times the way that they'll start off is in an incremental phased approach whereby they'll run um in line with their traditional operations uh Monday through Friday and they'll run what we call a closed loop system. So they actually very much manage the the end-to-end offering be it a crypto trading or some sort of retail brokerage solution um Monday to Friday say 9 to4 9 to3 9 to5 depending on the time zone um and they'll allow their customers to interact only inside their own architecture and infrastructure um they don't allow transferins from other exchanges they don't allow transfer outs that way they don't get involved in travel rule for example that Aleandro mentioned which can add another layer of complexity around data sharing ing um and they start slow and they start incrementally and that's what we advise they take a phase one approach to market maybe by launching just spot crypto trading one custodian a very simple model with the custodian maybe they don't even automate that inside widen on day one maybe they do that manually outside of widen they launch they get a feel internally with their custody team and their operations team and their risk team and their compliance team their seuite get comfortable and over time they say actually we're more comfortable we understand our target operating model. The business case has proved out.

Maybe we're not revenue uh uh maybe we're not profitable yet, but the revenue is starting to come in. And as a result of that, we're going to start looking at how we operationalize this further, how we automate so we decrease operational risk. Um what does that mean? That could mean adding on another custodian, setting up additional um sub accounts or segregated client accounts. Um that could mean actually automating their um their settlement life cycle.

So inside the widen platform for example you can actually automate end to end how you think about settlement. So if you have you may have preunding with these counterparties which is another kind of challenge and constraint in crypto because a lot of us are used to more of like these prime broker or credit intermediary models. So they may have preunding or they may work now with some of these credit providers that allow them to have more flexibility with trading but they can actually automate that through widen. So that takes a lot of the operational risk and manual risk out of the equation. So we see a lot of that.

And the last thing I just wanted to mention was outside of kind of the centralized custodial model um or maybe the more monolithic or or centralized approach, if you were to really go out on the scale and think more about the decentralized model and working with um uh when when custody maybe moves more into a programmatic fashion and you bring in actually smart contracts into play, which I think is much further down the road, there's a lot of other risks. So you might be able to automate payouts or transfer of assets um or different ways to potentially stake based on conditional parameters inside a smart contract which could be really really interesting because it opens up a much more endto-end ownership for a c custodian. But at the same time those centralized risks that you might get with a qualified a QC a qualified custodian aren't don't come into play as much as these decentralized risks. So for example, you might have smart contract risk or um you might have risk of who that centralized entity is. If that entity falls flat or there's a hack, where do you go?

The regulatory arbitrage is there as well. You don't have one regulator or multiple regulators um you know regulating these these companies, who's actually regulating this um this smart contractor DeFi platform that you're working on, right? You have oracle risk, right? in terms of the the risk around the oracle and how actually the data is coming in and if somebody is able to kind of take over more governance inside these Dows inside these you know autonom decentralized autonomous organizations they can actually have access to maybe some sort of hacking capabilities or getting access to the to the oracle in some way. So there's a lot of these other risks if we actually kind of play around and go a little further out on the risk spectrum, moving from kind of a centralized model to a more maybe decentralized or less monolithic approach as well,

scaring us a little bit.

I think it's fun to kind of think because we keep moving in a a more innovative direction and if we think more around, you know, where the market eventually could be going, you could see this converging with Tradfi really well from a tokenized or programmable money perspective and they can set up their own on um you know their their own priv you know I'm not going to debate private versus public permission blockchains but they could set up their own permission ways of working and have programmable you know tokenized assets and use these smart contracts actually to become you know not just the custodial lever um level but but but much more around the NTN life cycle of a trade so I think it's it all does converge even though I'm talking more about DeFi it all comes together

if we discuss the the future outlook of uh of the custod industry. Uh do you see a convergence between trade and uh and crypto custod models?

I think there will be a degree of convergence for sure. I think there's going to be a lot more coexistence

coexistence.

Um now at a group level for example because we also have a CSD with 20 trillion in assets under custody. We believe that centralizing also crypto assets and down the road tokenized products is actually a great way to ensure safety aka if I can move assets from one place to the other without them actually leaving the wallet that they're in. It's going to be significantly or it's going to reduce the attack vectors compared to moving the assets from one custodian to another custodian to another custodian. Of course, uh I'm talking about a CSD which has a lot of those assets today. In the crypto space, a lot of those assets will be with CSD.

A lot of them will be with a cryptonative custodian with the backing of TRDFI. Some of them will be with individual banks that have been providing custodial offerings in Tradfi which have decided to insource wallet infrastructures. That's why you talk about coexistence. I put this question because you heard the um the comment uh of uh uh security exchange chairman uh in US about to make the fi US financial market on chain is a for me is change the game also for custody if they they accelerate in term of regulation on that uh before the end of of the mandate of administration Trump it should be a big jump.

I think it's a big destination to get to, but the transition is ultimately going to be very gradual. But I leave the word to

Yeah, I think so. Zodia is a really good example of this because we're owned by a bunch of uh banks and one of them, Standard Charted Bank, who's our our largest shareholder, also has their own custody offering for digital assets. So, people ask themselves, well, how can these two things coexist? And the truth is is that you know as we touched upon before Zavi like there's a speed of innovation there's a speed of product development there's a speed of new functionality within the digital asset space that a traditional financial institution who has massive distribution capability that we could never match but cannot keep up with that speed and and so fundamentally I think Alessandra is 100% right is that you'll end up with a future where you have you know big trad firms with immense distribution. You have more embedded digital asset native firms who are more close to the evolution and the innovation of what's happening in the market very in many cases sharing clients you know so the same client will have an account with the big firm and also have an account with the digital native firm because they're able to do different things um and it'll be a kind of again to use the word the second time today a symbiotic relationship which is complimementaryary rather than what I think most people think which is trying to figure out how in a zero sum game one side will win and one side will lose.

Well, I think agree with all of what's been said and you don't move trillions overnight, right? Daily trillions don't move overnight to new chains or new new infrastructure unless there's a good reason to do so. I think we need to have better pull, right? We need to have that new infrastructure showing the benefits better to pull that and smart contracts and making things easier, reducing risk weighted assets, reducing settlement risk, reducing um credit risk are all good reasons for all of that to happen. Um the but and and you'd say I'd say that um we still need the rest of the ecosystem to also follow.

So for example, you know, uh I I chair the uh the digital assets tier at the Chartered Accountants Institute. Uh we need to get uh the ICAW. We need to get the accounting right. We need to get the tax right. We need to get the credential regulatory treatment right.

We need to get all of this right because without all of that in place, the institutions aren't going to really come either. They're going to dabble, but they're never going to come across unless they're sure that actually by them treating these assets in the same way, they're going to end up with all of the same treatment. And this was touched on the previous panel as well. you know, you need to have all of these hygiene factors, right? You know, we know how fatka works in the trady world, but as you pointed out, Alexandro, uh, you know, travel rules still need some working in in the digital asset world, right?

We need to have all of this in place as well if we're looking for that for that flood to to to to happen.

Uh, I think it's time out. uh thank you very much for your your tips and uh your highlights on this uh key uh subject for the development of blockchain and crypto industry. Thank you very much. Let's approach to my co-panelist.

Thank you very much.