Crypto - From Speculation to True Innovation

foreign [Music] and well done to all of you for hanging around to the very last panel of the day my name is Bassett I'm CFO of gbbc digital Finance gbbc digital Finance is a non-profit Association for the digital asset space we develop conduct standards for the digital asset industry with our member firms and I'm delighted to be joined by four gbbc member firms today so we'll just go down the line and ask you to briefly introduce yourselves hello everyone my name is Khalid nature I'm a co-founder and managing partner of nexo we're mainly known for uh being the largest crypto back lender since 2018 in the industry with heavy retail orientation we service about 6 million customers around the world in over 200 jurisdictions uh most recently we have completed our full Suite of services both to retail customers and institutions by integrating everything from payments movement of assets borrowing lending you know where our interests earned program is uh you know signature to us and trading of sport and derivatives directly onto the same platform most recently a global partnership with with MasterCard also has enabled our signature crypto-backed overdraft loans to be issued on the flight through the card so take a look at the app if you have hi everyone my name is Daniel Yang I'm the head of Market strategy at algorand Foundation we call ourselves the next generation of layer one all Grant was launched in 2019 uh by Professor MIT Professor so mccalley we are a proof of stake protocol uh with high capacity 6 000 transactions per second no downtime and uh we're very happy to be here we also are the official partner the blockchain of FIFA going to the World Cup uh FIFA has launched a nft collection on the back of the El Grant blockchain and we're very proud of that thanks so much for having me I'm Jamie leverton I'm the CEO of hut eight we are a publicly traded digital asset infrastructure company we started by mining Bitcoin and then last year Diversified into the Enterprise data center infrastructure space which we're using to build bespoke products and services for web3 we are also the first public company to hold Bitcoin um in treasury we now have over 8 400 South mined Bitcoin sitting on our balance sheet which is the largest of any public company in the world thank you hello everyone so my name is Nick Philpot I'm the co-founder and CEO of Zodi markets sodium markets is one of the world's first bank-backed crypto asset brokerages and exchanges we're based in the UK and recently got our registration with the uh with the FCA we have a sister company zodiac custody that as the name implies provides safe keeping of digital assets and really what we're trying to do is to bring some of that discipline and diligence that you see in the banking system uh into uh into the crypto asset markets thank you thank you very much so our panel is entitled from speculation to True Innovation and we've heard today both the ball case and the bear case and everything in between about crypto markets so let me start off the panel with the question around speculative Cycles in digital asset markets there's nothing new we probably haven't seen the last of them but do you think that the sector gets unduly punished for what's happening compared to what happens in Global Financial markets who'd like to say that one um allow me to start off here yes by all means these speculative Cycles you know which are mainly driven by excess use of Leverage uh I have not you know uh you know are not an isolated incident incident we're going to have those in the future again as we have had them in the past and and yes you know they are underlined by you know Bull and Bear Cycles in traditional assets you know so if you have had an obviously a very accommodating um you know I don't know money printing strategy on on the part of multiple governments around the world it is only natural that these excess assets will uh you know filter into the crypto segment as well and of course as I mentioned you know due to the lack of uh you know any you know notable checks balances you know regulation of course you know that you know these swings can be accessorbated on the you know again you know on the uh you know the on the positive side and on the negative side um what's important for us you know of course is you know to notice that together with the good things you know you also have the bad things you know we what do we want to be you know fully regulated and uh and basically eliminate all opportunities you know uh that are you know we're seeing in traditional markets or do we want to have enormous upside potential uh and Innovation you know but at the same time you know obviously uh no growth you know we want to see both right you know so you know for the most part you know what we have always felt at nexo is that it has been on us first and foremost to self-regulate you know to make sure that we educate our customers we explain to them what is the healthy use of financial services what is the healthy use of Leverage and you know how not to blow yourself up you know by going into two risky strategies but at the same time you know of course we have always welcome the healthy dialogue with Regulators such as adgm and making sure that the Playbook and the rules are there for everybody to follow and that you know everybody essentially is put on the same uh uh you know Level Playing Field so that uh you know we we play by the rules and we everybody provides Financial Services to its user base in affairs responsible way I think there's probably a good argument to say that digital assets of networked crypto asset markets have not helped themselves by not really studying other asset classes in the history and other asset classes so there's a lot of parallels that you can draw between some of the crises or mishaps that you see today so for example FTX looks very very similar to the refco Scandal back in 2005 you can go way back so Voyager looks very similar to the collapse in 1907 of the Knickerbocker trust so I think you can't really suggest that everyone in digital assets you know is all collectively responsible but there are certainly some actors who could help themselves by studying history a little bit more and I think because we're so dependent today in the industry even as the public companies on the retail space that drives a lot of speculation more volatility until we get more uh long funds more true institutional investment in this space I think I think this is going to continue to be a challenge for us So Daniel maybe I can come to you then what's needed to move us Beyond this phase into what Jamie's describing um what's it going to take for there to be true adoption of digital assets and truly experiencing the kind of innovation that we all aspire to I think first of all I mean the the Chrysler wasting ref TX is uh uh no it's a repeat of what we've seen in the past right there's lack of transparency uh greed and uh and and crypto will always be highly correlated to to emotion so I think as a speculative assets crypto was stated the same um I think Cesar this morning made some really really valid point I think the industry needs to be more transparent um we're already seeing a lot of exchanges coming out with Reserve Miracle tree I think that's moving in the right direction I think the idea of having a Consortium of big players dealing with Regulators I think that will help tremendously and uh look this is obviously a very cathartic moment for crypto in general what's going on with FTX but I think the the industry itself will mature and grow I think two things right I think one uh D5 will be a huge benefit of this we're already seeing an uptick and D5 exchanges Perpetual protocol while it downloads so we're definitely moving towards that direction uh where there's going to be more D5 usage and I want to see a world where there's going to be a mix of D5 and C5 right perhaps it's going to be a decentralized wallet with some aspect of Web 2.0 authenticator uh some kind of uh uh some kind of ways to improve security so I think it's going to be the growth of D5 but also hybrid C5 and D5 moving forward to make it more secure for users and so I'd like to get the panel's view on you know we're at the home of financial markets in Abu Dhabi where the regulator sits as well what's the role of the regulator in this well the the role of the regulator is extremely important uh and I cannot imagine you know that there isn't a single one of us you know sitting here because we see in adgm a very forward-looking regulator that listens that wants to promote uh Innovation and I can certainly attest on on behalf of next so that the conversations we've had with adgm has been have been absolutely Stellar since day one uh you know the level of of knowledge and education coming from adgm are truly truly spectacular uh you know when we have the conversations here we explain what kind of uh Innovation and services we are interested and and and and in in developing and promoting and we see a regulator that actually understands our language and has a truly viable conversation with us uh this really isn't you know the situation in many other parts around the world and believe me you know next to is a global company so we speak with Regulators or all around the world you know in some areas you know The Regulators are telling us that what we're doing is not under their purview you know and it's not something you know that they can be responsible for in other parts you know we're just being told you know that as soon as you know regulation becomes available we can start a meaningful conversation then and you imagine you know that again in an Innovative industry you know where things are moving you know literally between you know one day to the next you know getting an answer that you know you might have a solution two years from now is definitely not something you know that you expect to see in this space you know perhaps of course you know threadfy traditional financial institutions yes you know but not not in this space you know so um again you know a very high degree of understanding and education and you know a similar mindset that things are moving very quickly and they need to be grasped they need to be put into perspective today uh is definitely something that you expect you know from a forward-looking regulator but at the same time again I believe that companies also need to be fair to themselves and to their industry in understanding you know that the regulator needs to be you know needs to be there you know and it needs to be firm uh with you know these uh with this rule book that everybody needs to play in accordance with so we're blessed to have folks that have started off in different parts of the world and have explored the regulatory regimes in different regions So Jamie and Nick if I can turn to you and ask you you know what's your experience been like how does it compare to your experience here uh in your home market and and elsewhere and what are the what are the nuances you see as you go around the world trying to understand the regulatory Frameworks yes I mean we're majority owned by Standard Chartered Bank so global bank operates in Emerging Markets we have relationships with a lot of regulators around the world in a multitude of different asset classes I think there are three different things that Regulators can do the first two are often very easily confused so that's to regulate that's the obvious part but then also to provide regulatory Clarity and those are not the same things so if you turn around and say well this looks very much like the FX spot Market let's treat it like the FX spot Market where FX spot is unregulated in most jurisdictions but you have things like the FX Global code you have things like the financial Market stability board you have things like accepted industry standards segregation of client assets and things like that so that's very sensible then after that you've got actual regulation so if something is a security or looks like a security that's fine we have a corpus of security regulation over there and the third part and probably the most important part is to execute so it's actually to have the resources to allocate to be able to process a registration application quickly and I think all three of those actually the first two certainly are built on a Bedrock of of education and understanding and that's something we've been very very impressed with um you know the team here the fsra their knowledge of the asset class is absolutely very very impressive indeed and I can speak to our experiences in in Canada and the US in Canada they've actually been quite um Innovation forward as far as far as how we treat uh blockchain and crypto in the Capital Market so Canada's had spot ETFs for both Bitcoin and ethereum uh actively in the market now for over two years that's one of the key things that we're con we're waiting to see uh come in the U.S market and they've just they've they've got they've got comfortable with Futures but not yet with spot and I think that that when they when they finally get comfortable with the spot ETF that will also bring Clarity and bring more institutions into the space and the other thing moving away from Capital markets to the accounting side one of the challenges in in the U.S accounting system is today if you hold Bitcoin on your balance sheet uh it's really treated as an intangible asset and you have to hold it there at the lowest value that it's had since you 've owned it and fasbi has now come forward in support of changing changing that so that you would actually be able to mark your crypto to Market on a quarterly basis at fair value and I think that will be another uh bullish indicator to bring institutions more actively into this space as well as as corporations from a treasury management perspective I think regulatory Clarity is uh super important being in Singapore the Mas for example they've uh issued a statement uh two days ago regarding FDX losses Singapore retail has a high percentage of users for example within a country and the reason we need that is you know we really want to onboard the next trillion market cap and crypto and without we go through Clarity it's very difficult for pension Sovereign to get involved so I really believe that you know helping these institutions helping Regulators getting more clarity that's what we're going to onboard the next generation of users and that comes with less speculation less volatility more stability in the asset class and even the duration of the investment thesis is going to be much longer longer in the horizon so let's move forward and let's hope that we get that regulatory Clarity and we see all the fruits of what Regulators like adgm are doing come to fruition where then beyond that are the true Innovation opportunities and that will eventually grow this sector beyond what it is today into the global Behemoth we all expect it to become I think if you're looking at a large Financial Services firm one of the the simplest and most appealing use cases is interoperability if you can have two currencies or two stable coins representing two currencies that sit on the same settlement infrastructure then the potential to put payment versus payment settlement into place it's very very appealing if you can then do the same thing with different asset classes so you could have a security or a tokenized version of a security that again sits on the same settlement rails for the stable coin or the currents the representation of the currency that's being used to purchase it then again you can rapidly integrate different asset classes in different markets and you can remove a lot of the risk particularly hershdat credit risk settlement risk from the system yes you're going to be transforming it a bit into operational risk so do the SMART contracts work do the underlying settlement rails work but you're going from very large credit risk to hopefully significantly smaller operational risk so for a large firm like like us I mean that's very very appealing indeed well uh one thing I would like to add is uh one one of the you know most uniform uh topic that we have touched on all of us here is the the notion of transparency and uh I think that you know this is one of the Innovations you know that I believe is coming from our from from our industry you know there's uh you know this full transparency that we all see on the on the blockchain is translated into so many aspects of our operations and you know think about it this way you know in 2008 you know how many investors would have loved you know to be able to see this degree of transparency from some of the institutions that failed um you know uh recently everybody started talking about you know this um you know this proof of uh of funds you know on exchanges and I think you know that this is something that is definitely coming right and you know whether Regulators demand it or not you know I think you know that the market is going to push you know the industry in this direction and every single Exchange in the next you know let's say six to nine months is going to start you know presenting you know some sort of you know proof of reserves you know type of uh attestation on their website you know nexo for example you know we have been doing this you know with uh our Auditors you know for you know at least a year and a half now you know all of you who are aware of us you know know that in real time on our website at any time you know you can you can see this uh verifications that our uh assets essentially um exceed our reliabilities so so I think you know that you know with or without the regulatory uh you know Clarity you know about these things you know if this is something you know that later on you know after years will be expected from uh blockchain in company participants or it sounds something that our clients you know both retail and institutions will demand from us uh you know this degree of transparency will only increase and I think that it will be to the benefit of everybody so you would agree with me that you know the crash let's say we saw in early 2018 was completely different from what we saw in 2022 and of course the degree of maturity in the industry is completely different on a completely new level and yes you know will there be you know crashes again in the future there will be but there will be for other reasons you know and I think that the industry will always be more prepared more mature and will emerge stronger from whatever predicament you know we see you know uh you know each other you know going into the future I think uh like you said if you look at the price of Bitcoin right we went from what 20K to 16k uh amid the FDX crisis I think that's a sign of maturity actually I think that's a sign that uh uh asset prices are holding well uh to a certain extent to some extent they've done better than equities uh and and I think in the meantime look if you if you have issues with with exchanges centralized exchanges uh on augment for example you can use a co-wallet uh interact with a decentralized application an automation Market maker you can buy cryptocurrency Bitcoin ethereum even I'll go and transfer in a very trustless matter so these decentralized Solutions are available and I think it's only a matter of time before they get more and more attraction and I think proof of reserves is is incredibly important but it doesn't show the whole picture unless unless you're also putting up proof of liabilities I think there's probably one other bigger picture uh sort of gain is to actually put Financial Services onto the internet because at the moment I mean say for example if I did a dollar Dirham trade today I get my Dirhams on Friday if I go onto Amazon Prime I could probably get physical stuff on my doorstep maybe today definitely tomorrow and that's pretty embarrassing for financial services as an industry to not be able to achieve that so do actually to be able to get you know Financial Services onto the internet so that sending a remittance so for example you send a remittance to an overseas country that's going to cost you sort of 10 to 15 dollars to send 200 and it's probably going to take you best part of two or three days to actually execute that if you can get to a point where say a remittance for example can be as easy and as cheap as sending an email then you know finally I may be able to sit at a dinner party and admit that I work in financial services and not be embarrassed about it so we're actually running ahead of time if you can believe so I'm going to throw a question into the panel which they're not prepared for um in terms of innovation can you tell us something about what your firm is doing that you're truly proud of from an Innovative perspective that you're allowed to talk about and if there's nothing you're allowed to talk about then where do you think we'll be in a year's time from now if we're back here next year at crypto Abu Dhabi okay I've got two things so the first is to be able to to have been able to navigate a business like Zodi markets through a large global bank to have got reputational risk committees compliance committees and all these various other different people comfortable with digital assets and with us as a business so you're starting from a position where the financial crime guys are thinking this is all just yes it's all Silk Road and financial crime no it's not trying to get all of those guys comfortable the second part is really just trying to do the basics right so to bring the very simple things that you do in financial services like segregate client assets you know to keep those safe to do those very very simple things and to do them right um I think is is something that you know hopefully we'll see this asset class gain much broader adoption institutional adoption and I mean proper institutional adoption not necessarily the way that perhaps it's been described in some crypto circles and hopefully that would be good for the for the asset class and for the industry so we have a culture of innovation we're the first public company to hold Bitcoin on balance sheet one of the first publicly traded Bitcoin miners the first digital asset native company to buy traditional Enterprise infrastructure uh we are now launching brand new products and services on that infrastructure that are unique to support the web3 ecosystem and I as a pubco I can only talk about things that are public so that is all of that's our Innovation track record but you can expect us not to slow down and I'll go around we are working with this application called melcomeda which eventually would enable evm compatibility for algoran we're now operating with a with a language using teal but we think uh you know we believe in the cross chain rule we want to make sure that there's going to be easier transfer asset between different chain and we think that all Grant is going to be the cheaper and faster solution so that uh gets us a very very excited Innovation and disruption of traditional models has been in our DNA since day one uh you know we again were the the company that pioneered the fully automated crypto-backed uh loans back in 2018 we we introduced The Daily compounding uh interest learning account uh after that most recently as I've mentioned uh we have this um you know through partnership with the MasterCard where the plastic itself the card you know with a change of a radio button in in the app you can select it to either be a credit card or a debit card uh and that's you know something that you know hasn't existed until now I would say that for us you know it's not so much you know I wouldn't uh designate us you know some sort of um uh you know Financial Services inventors but what we do very well is take an existing Threat by uh service and add a lot of technology and Innovation to way to make it more user friendly and more seamless for use by users or all around the world our next Frontier is the the wealth management and asset management industry we're already having a few projects you know where you know we will make use of uh an access to wealth management products uh much easier and much more friendly for users around the world well thank you very much everyone we're at the end of our time thank you Nick Jamie Daniel Cullen thank you all for listening and thank you to adgm for having us thank you thank you