Custody & Wallets: Keeping Your Digital Assets Safe | European Blockchain Convention 9

[Music] good morning I I expect you had a good time yesterday you're not too hung over today we talk about the most interesting topic of last year which was custody which was proper account segregation we also saw what happened with FTX we all got afraid when binance was under the gun and and with that we all know that there are only three certainties in life it's death we have to pay the taxes and there's going to be another crypto hack so that's why we have to keep our Affairs in order and with that I would like to introduce our panelists and first off H Natasha you introduce yourself hello everyone Natasha deser I'm working for BNP Paras Security Services as a blockchain program manager yeah good morning everyone ganot from rien Bank International RI Hasen Bank International is a universal bank with headquarter in Vienna Austria based but we serve customers in 14 markets in C so central eastern Europe um I'm there in the group strategy department and I'm basically the blockchain Hub lead so trying to combine everything uh starting from cryptocurrencies implementation into the bank but overall also uh the entire blockchain technology setup Nadia filali I'm head of innovation and business development at KES Depot KES Depot is a public Development Bank in France and a public group and we are working on blockchain uh since 2015 uh with team with uh working on that uh even on technological point or on U innovation point and uh we are involved as a a Casp on custody for our public clients and we work also on on the and on tokenization of assets good morning everyone so my name is Victor bus I'm the chief marketing officer of tus so tus is a digital asset infrastructure provider we provide custody tokenization and even infra nodes infrastructure including indexing uh we work mostly with banks well that's great I mean at the end of the day you may be wondering why the hell are these straty guys talking to me about crypto again obviously we have Victor that's the exception but at the end of the day how how did you transition from trafi into crypto like what made you move in into this new and ncent asset class um so as as far as I'm concerned I've been working for BNP pariba for 18 years now I started in operational teams U settlement custody corporate actions uh so facing a lot of a lot of pain points um and then I joined the project management department working both on Market initiatives like t2s implementation uh European corporate action standards tax standards and also working on uh let's say uh internal transformational projects uh trying to identify pain points and solving pain points uh and I liked this last one very much uh working with uh with operational teams with clients to to search how processes could be streamlined how client experience could be improved um so so when we started hearing about this new blockchain technology which was supposed to uh revolutionalize everything and when a dedicated team has been created at BNP pariba to to explore this new technology and assess uh how it could impact the financial sector I've been of course I've been willing to to join the team and to to be part of the exploration yeah as as you can see I'm not a digital native so I have a background of 20 years plus in in banking business in particularly uh project finance and and leasing business and then somewhere in between so after 10 years I started to deal with uh digitization in banking that brought me then in 2018 to to to our strategy Department in RBI and um a unique skill set for an Austrian so being able to speak German brought me actually into the blockchain space because we were back then invited to a self- sovereign identity uh project in in Vienna and uh my colleague who was running the the blockchain agenda back then was not a native German speaker and uh so I jumped in and uh this was my first touch point so didn't have any clue at that point of time about Bitcoin and blockchain but started doing uh from from self- Sovereign identity to dig deeper into blockchain and at the end of 2019 I I told to my boss either I quit or I can or I will only focus on on blockchain topics because I truly believe uh that the the blockchain has a transformative power yeah um I think you don't have to like Bitcoin to love blockchain technology and this is also the things what keeps me busy now in the last three to four years so telling to our board that there is a a view on the technology and a view on the asset Cass and that you but you that the asset cast gives you a lot of opportunities beyond the the discussions what you see media so all this fraud IML topics also the ESG discussions I met weeks of time in my in my work life I was just discussing these topics but there is also there are opportunities in there and steadily our Risk Managers our compliance officers our decision makers start to to get an idea and um yeah we are currently working on on a product setup uh uh on a crypto ETP uh and we hope to be able to put it on on our product shelf either end of this year or beginning of next year uh me I think I'm older than everyone here but I began to work in uh it solution for valuation of portfolio after I was Deputy head of back offices on the finance and uh and payments and I work on different project of transformation and when I was um head of Business Development uh for a new mandate for C Depot one day a young guy or 14 years old said to his father and to me do you know about Bitcoin it's cool you need to buy it so we look at it at him and said you are crazy there is nothing here and because I know that my mat is is a really um Innovative guy I go back to office and I go to see uh someone who is working on financing the the digital space and I asked him if he know that and he said yes and I show him for me what it's the the scheme of the process to front to back office on Securities and I said to him so it's very cool because we can cut many things there and doing things and so um I I buil the the the la the the blockchain and crypto asset program in K Depot and after I buil a Consortium named lab chain where I involved different banks like BNP s General CR and others but also startup because what we want to do here is to build a d ton but we were in 2015 to understand the things and we began like this and after we launch company on um settlement and issuing of uh Securities on on blockchain named liquid share that died this year even with BNP and Aon next and others and we build archipel on the ID and Sovereign identity with lapost ngod and Ian group and but this company is live and is working already now so we began like this and I think that and we don't only begin we work on that for many years now and I agree with you that we can be not excited but some crypto we can be also agnostic it's the case in my team and uh we need to be open because this those technology it's not only one uh for me it's what I name a social protocol because all the the things that are um moving in our world and in the society are linked to the evolution that we see on on technology so it's important and on my end I would try to keep it short um so coming from proor and Gumble so I was marketing director and actually I was even in China just before transitioning fulltime but the background story is basically I knew the co-founders since the creation of terus so I was working at the same time of my full-time job I was having very deep interest into the area so very deep retail user of defi protocol anything related to crypto and basically join to is fulltime January 20 2021 great and for me I I work in julus b i take care of the investment research have the house view on digital assets I also work with the strategy I come from Venezuela The Land of Arbitrage so we've been using cryptos for a while to hedge our domestic currency exposure and that's that we cut now to the chase to the juicy stuff with you Victor you work in Taurus you try you aim to provide the best best in-class crypto custody there is so how do you see the future of crypto custody what do you think of account abstraction in the future what's going to happen in there so the future of custody on our end so level one of custody is protection of private keys if I keep it very simple uh and then usually the level two is signing machines so basically you will protect the private keys but on top you have a layer to sign transactions so basically you certify that you will be using the private key to actually uh yeah sign the transactions what's important for us is that actually now Future Ready custody Solutions needs to go Way Beyond safekeeping of private keys and actually what matters is that today in the traditional Finance World a custodian should perform asset Serv in and this Vision can be done only if actually your custody solution can treat any process any tokenized asset independently from first the blockchain being used is it public or private blockchain and secondly independently from the smart contract being used because you don't know which standard will win so is it a erc20 is it fible not fungible is it ERC 3643 is it ERC 1,400 toiz Securities you have each time lot of questions and those custody solution should be able to really process and to really follow what we call an open architecture so that you're able to work with everyone so our job as a technology provider is to abstract the complexity and making sure that the bank can focus actually on the use case to deliver real value um if I get into a bit more details and then I will hand it over usually to be ready you need this in vision of integrated custody and tokenization because what matters is the set life cycle management or Securities life cycle Management in the case of Securities so first you need to cover the value chain so custody plus tokenization second you need actually to to implement uh what you call to be asset agnostic so smart contract agnostic thirdly you need to implement what you call to be able to process it on a crossb basis because if you're a big entity the regulatory framework will vary from one country to another and when you do this Securities management you need to take into account and first you need to implement to what you call banking rate control so all the functions of the smart contract you need to implement governance rules behind it and this is also with who initiates and who will approve a transaction and also this is critical well high level that's brilli I can talk more after on account oh you can't your time is up so with that I mean we've seen what happened this year it's it's been all about the the big institutions the big trat five players getting into crypto we see very muted levels of network activity across multiple blockchains we see low transaction counts we see H Little Numbers in active addresses but since June we saw Black Rock Fidelity and a bunch of the O other of the world's L largest asset managers started displaying interest not only in ETFs but also in tokenization efforts and with that I I want to ask you gernot do you think crypto has has been a wakeup call for trafi I mean how do you see the efforts of traditional Banks evolving in terms of providing crypto Services custody I mean we're all here and we have something to share in crypto even though we come from trfi MH yeah I mean generally speaking our strategic belief since three four years now is that uh crypto currencies in particular will change the the customer perception on on investment yeah so we see that that that there is with cryptocurrencies a new gold standard arising so customers are expecting in the future 24/7 trading ability uh real time settlement and transactions and also full transparency yes we can discuss if all these features are equally important to all customers and some are May one the one or the other feature is maybe more relevant right now and and uh real time settlement is maybe not so important for a private customer in this very moment but the standard Is Here Yeah and we can mimic around in in in the traditional world of financing uh and and pretend that we are also in real time and settlement is is happening uh then five five days later in some sometimes but uh sooner or later we the show the show is ending for us yeah so I think there is a true uh point in that we have to trans form um and the way how to transform we see different strategies uh at the competition also on our end when we discussing it so there is obviously a a huge demand also on our customer side in retail customers to to have an exposure towards crypto so to be able to to to buy a Bitcoin uh um our role can be to be the safe custodian clear this is our reputation to be a reliable uh and trusted partner of our customers um but we also have other customer groups like institutional investors Pension funds who are also interested to get some maybe some tiny exposure in this field because they are able to to tackle the risk yeah and they want to mix it into their overall portfolio but they are uh regularly very strictly bounded to to Capital markets products so that's where I see a field uh for um tracker certificates etbs and and and likewise so you can go both directions as a bank you can do uh the the indirect offering which is maybe scarce of uh a lot of uh Bitcoin enthusiasts yeah but for some players it's it's important to have the exposure and they would like to rely on on on tra traditional rails so very briefly is crypto the future of trfi or is trfi the future of crypto um good question we would need the crystal ball I cannot tell you um what we also have to consider um crypto in particularly Bitcoin everything at the moment looks like uh that Bitcoin is the the sun in the heliocentric world of of blockchain yeah and if you are in banking you know that there are a huge variety of asset classes and where is where is enormous potential of of volumes where a lot of equity is is is is stuck so I would rather see that um Bitcoin and cryptos is is is a good spark uh but the fire will ignite when we talk about tokenization which takes some time but slowly but steadily this ecosystem this complex ecosystem of financial of the financial world will will start to grow into this great I mean you talk about tokenization we're all interested in tokenization I go to our expert Natasha I mean everyone is talking now about tokenizing shares tokenizing funds tokenizing private positions tokenizing effects everything wants to be settled on chain what are the advantages of this or is it all Bs um so maybe I guess you all know but um as a reminder so tokenization is the process of uh issuing a digital representation uh of an asset on chain in the form of tokens um which we call security tokens when we talk about financial instruments like equities bonds or and shares um security tokens have the characteristic of financial instruments and they qualify as financial instruments under miid but they they are also a new form of assets with new characteristics and there are two main advantages and there two key differentiators um uh I would say are the so besides representing value they can also encapsulate data uh various kinds of data can be the term sheet of the instrument can be the calendar for the corporate events um ESG data also for instance uh and so and and this is this is interesting because it brings a lot of visibility and transparency on the financial instrument for the investors and for for all the players who have access to the blockchain network and their second main characteristic is that uh they can also embed rules uh and they are programmable thanks to Smart contracts um again I guess you all know what a smart contract is but um so it's it's a it's a rule that you can embed in the token and uh which allows to uh automatically trigger uh specific actions uh when uh certain predefined conditions are met so uh these rules can be processing rules to trigger corporate action payments for instance uh this can be compliance rules um if we talk about uh cash tokens um and and about Central Bank digital currencies for instance uh we can imagine that the central bank can also embed policy rules directly in the cash token uh so as opposed to uh traditional financial instruments which are passive instruments um security tokens thanks to these smart contracts are uh active assets and smart smart assets we can say and and thanks to these programmability features of course you are also able to automate a lot of processes and thus reducing uh reducing operational risk and bringing a lot of efficiency and and maybe one last uh one last thing um so if you combine the characteristics of the tokens with the characteristic of the underlying technology and the character of this share network uh it's very interesting because you can you can solve a lot of pain points uh you face today because you can move uh uh from this long chain of intermediary and this sequential process where the members of the value chains are dependent on another entity to trigger an action to to send an information with the issues we know today the the delays for for the flows to go all the way down the chains and all the way up again uh the the risk of Errors the processing breaks uh and the reconciliation issues so so with tokens and blockchain you can move from this sequential process and and also I don't know if you if you sham the the same the same concl the same um Vision but a lot of the financial losses H we have today as a custodian and as a as a financial intermediary are also linked to this sequential process because sometimes you receive uh diverging information from two various sources and you need to and you spend time to check which one is correct uh or you receive an information too late and you you cannot process a specific action on time so with token and with the blockchain you can you can move from this process sequential process to a process where each member of the value chain has the has the ability to uh to have a direct access in real time to the golden source of information without being dependent on another entity in the chain so um as a as a financial intermediary you can go directly uh proactively get the information you need get the raw material you need to to operate and so this is quite powerful because uh besides uh reducing operational risks and and processing delays um um it also makes each um each Network participant much more autonomous and much more in control of his of his activity that's brilliant I mean you talked about delays that's what we all hate I mean I guess new generations are all focused on spot and spot is no longer T plus3 nobody's waiting three days for a wire transfer to come across for my FX settlement to to clear I mean and with that we see the latency the blockchain offers in a couple of seconds I'm sure it's going to provide a lot of answers to our questions but with that education becomes a big topic how can we ensure Nadia that our clients are educated enough in order to partake in this blockchain journey with each one of our institutions the question could be invest if you want also depends uh the point of of blockchain and crypto uh when we began to work on that we said that there is a question of education and not only for the teams because the team when they are involved they get to be educate because they like the point but it the fact is more U first of all before educate the clients I think you need to educate all the the staff in the in the the corporate and the institutional entities because there is a lot of uh buz effect on those subject and we know that it's always true uh today uh because the blockchain and crypto are against the the climate blockchain and crypto are dangerous and risky and blah blah blah and so first of all you you need to explain what is it what it is not you need to explain that you will not change the world and change all the things in our current services with those technology it's not true and you need to explain but Natasha began to do it that there is some benefit to use those technology or do assets and you will educate people only if they say they they saw um an interest and a benefit for them I think it's the the first point that's brilliant I mean it's you begin by that if you don't them by something that they need to to work with they will do nothing and for our clients because K have some particular clients because we have public clients like government like notaries like people who are working in the Justice in a in a legal space and uh some people in territories also and um it depends of the some of the clients come to us because the world changed and they have them themselves some clients who had crypto and they don't know what to do with that and they don't know what how to work with those clients so what we do and it's what we do for example when uh we launch our offer on custody with the first client that was the government so it's not very easy it's that you have front of you people that receive uh crypto but they don't know how to do they don't know what is it and so we work with them for many months to explain to them how we will do but I something it's why I said that your question could be in the the two it's because the commercial part we said so a client has something you will work with them it's okay but if the client don't understand how it works concretely what where are the risk where the complaints that we need to put inside because we are we have a regulator as a bank and so we need to to work in in a certain manner you need to explain to your client exp educate your client that you cannot build your services like they want but like we it will work and like it will be compliant because sometimes it's it's difficult but uh that's super I mean the game changed now you have 90 seconds to answer your questions I will be rude I will interrupt you I will go for Victor First Security I mean two things first off what is the importance of account segregation how does the future look like for banks with the high reserve requirements especially when you have the current yields in the US treasuries for example example are you going T Bill and chill or why should the banks keep their reserve requirements for cryptos go on SEC on on SEC on sec thanks for the pressure um no so on security you have different levels so I I talked about signature mechanisms you have access management controls you have compliance requirements so you need the kyt provider you need to make sure that you comply with travel rule so it's also another discussion you have what you call the risk management to cover the operational risk now here what we saw and to your question the issue is to avoid reapo of fund and also ensuring that from an accounting treatment maybe if people are using so you have two type of wallets let's say that could be Omnibus or segregated Omnibus there will be a risk of coming element so basically and the full point is to avoid having an actor using the fund and and uh and ending up actually generating a yield on this fund of this on customer fund if I oversimplify what we saw is FTX that everyone talks about but it's it can cause those liquidity issue and basically that's why segregated is so important now the another risk that we have is I think that in July the SEC guidance gave I think was saf 121 saying that uh there's implication between having assets on the balance sheet or off the balance sheet uh what happened is that for the first time basically crypto might be considered on the balance sheet and simply because basically there will be higher risk of significant loss that compared to other assets for custodians and the implication of having the asset on the balance sheet would mean that you have you require actual Capital requirements usually this ratio could vary like from 800% 1,000 to 50% and sometimes even more and that's where basically the issue comes from so that's why segregated is super important youo you protect customer fund but after you have those problematic of on off balance sheet I stop here amazing amazing so guo investment implications did Bitcoin become the store of value did Bitcoin become the risk of asset of the blockchain of the cryptos why are we using Bitcoin as a store of value rather than as a payment mechanism or a decentralized peer-to-peer H Network as it was originally intended what are the implications of the etps what are what is all the investment relevance because obviously when you're buying an ETP you're not buying the direct asset but rather you are having Black Rock become one of the largest holders of Bitcoin if it ever materializes so now I have 90 seconds to answer a question we took you already one and a half minutes to put okay straightforward as said I think Bitcoin is a good starting point uh to to from a financial institutions perspective to get into the business there are various ways to interact uh as said before tracker certificates etps are good on the mid to long-term perspective I see rather the the wallet game coming in yeah so I think that those products will be not existing in 10 years from now why because I think with the deeper integration of U crypto technology into traditional Financial world we will also go more in this wallet interaction game so that people all kinds of customers even institutional customers Pension funds will have experience in using wallets and this opens then New Field of activities also for them that's great Natasha the topic we all hate but we all have to learn to love which is regulation how do you see the future of regulation in the European Union how does it affect your Institution and how how do you plan to to move forward with it um so at the moment so I have 90 seconds uh at the moment uh it's quite challenging because uh the current regulatory framework for digital assets is is fragmented across Europe um European countries have implemented so far uh National rules uh to adapt for digital asset so as a custodian it's uh it's quite challenging because you need to to navigate different and sometime sometimes inconsistent National requirements for the same activity and you spend time to to understand the legal obligations the roles and and responsibilities in each each jurisdiction so it's definitely I don't know if my counterparts here or are in the room share the same experience but in the projects we have conducted it's definitely um the legal and Regulatory aspect which is the most complex and time intensive aspect much more than the technological one uh and regarding the future so as you as you know the udl P Reg has been implemented a few months ago and for the first time we will have a Sandbox but not at National level but at a regional level at a European level so it will be the opportunity to to experiment at a larger scale with a bigger ecosystem and also uh and also very positive step and and a good step towards more um harmonization and convergence across Europe that's amazing so Nadia we've seen Barclays settling tokenized Black Rock assets on the onx blockchain by JP Morgan we see the City Financial Services offering also settlement and crossbank collaboration how do you see the future of interbank collaboration on blockchain activities do you think it's important where where do you think we're moving to I think that if you're really work on blockchain you cannot work without collaboration just first point because blockchain is something that you use between different parties and this party could could be confident or not is the first point and uh we know that for example in France one of of the first uh very first point of our collaboration between Banks was something perhaps you know here it's C Banker but it's very old and I I think there is here an opportunity to work together and I think the pilot regime is one of this opportunity to work together and there is something really important uh between the banks it's that obviously if we are working on the transaction you will have a counterpart between front of you and all the counterpart at do bank already so you you need to build infrastructures that could be interoperable there is a point of standardization here also to be compliant and doing yourself and working on this area alone I think it's not an issue and it's why in the beginning we we launch lab chain we launch liquid share and trying to work together in the in the bank space I think it's very important and perhaps there is one issue that could be different that before is that because blockchain and the LTR have no Frontier it would be more difficult because you need to to do that at the international level and not on the national level and not on the European level oh that's brilliant so and to conclude I want to cut your time in half you have 4 40 seconds now it's less than half actually so how can this shift in paradigms determine who will be the fast movers and who will be the dinosaurs in trafi and give us one piece of advice the only thing that matters that we take home today starting with you Natasha 40 seconds um uh so I would say that the dinosur and fast mover depends on the angle because uh we tend to think that traditional banks are dinosaurs but if you if you take the angle of Regulation risk management we could be fast movers um because we have the trust of our clients so uh and the most critical piece of advice I would give in this evolving changing context is to uh stay relevant I don't think all the traditional incumbents will disappear and will be dis disintermediated that the roles will be reshaped for sure uh so yes stay 11 keep adding value for your clients and and for the ecosystem and as said uh um keep stay connected create good partners ships and and especially uh keep all levels of your organization aware of what's going on and up to speed to to be ready perfect gno yeah I think also a dinosaur can move fast yeah but uh speed is not so important for for from a banking perspective yeah we should be a stable partner we should be on on the edge of technology so we should learn and open ourselves also try to shape proactively the ecosystem meaning also go uh to the regulator try to find solutions to to use MAA MAA is a an excellent regulation but it's not perfect it doesn't have to be perfect I think it's safe enough to try now to get to give it a try and this is where we see our position I think it's also a blockchain and crypto is a team event so I like to have the inter uh the exchange with fex they are the fast movers uh we want to to partner with them we also want to speak and we are speaking with other banking groups because it's a I think it's a competition uh set up in the future Nadia yes I agree that it's a it's a story of competition and I will said it's a story of Co petition and so um there is people who are going faster okay but those people are going faster in an environment that is not so clear for the moment and I agree with Natasha that when you need to be compliant and it's expensive to be compliant it's you don't have many value added but it's expensive to do it I think there is an advantage here for the more largest uh Banks and and institutional but we need to work uh together with uh with startup and fintech it's what we are doing uh already in Cas Depot and just for an example we we develop our self custody solution but we we do it working with people who are in the space and it's uh it's really important and we need to be in a competition in collaboration and not the big against the small or the small against the the big because we don't care about that if you want to to make this ecosystem with good velopment so Victor you have 25 seconds I can make it nor so at least from what we saw and for having worked with several many big Banks um strategic alignment top to bottom making sure you break Silo between the different teams and even department and functions so between corporate banking PR between private banking usually Security Service there is always things and sometimes from the touch point point of view we have the same discussions with different team so there is like no centralized cooperation between so breaking those silos ensuring that you share best practice and then cross disciplinary effort between product compliance um all the different department I think this is critical and once is like this even the fact of having custody and tokenization sometimes people work on similar projects but they don't talk to each other so making sure that everyone collaborate at internal level and then on the coopetition at an external level obiously uh what we see with the rise of Consortium again tokenized deposits and all the rln network everything that's happening right now you see this Global cooperation so that things move forward and we have this standardization that we drive adoption amazing thank you please give a round of applause to our panelist and yeah