CeDeFi - An Emerging Opportunity - TOKEN2049 London 2022

thank you so much so I think if I had known about the type of events that would unfold over the last 24 hours I would have probably chosen to talk about the value of holding trading and lending and managing your crypto with a fully regulated Swiss bank uh who solely focuses on the world of digital assets I would have probably chosen to talk about the value of proper asset segregation about the value of holding assets in custody with the central custodian without being exposed to any counterparty risk because such assets are being held off balance sheet I would have probably chosen to talk about having proper and sound governance mechanisms and risk management principles and Frameworks in place and I would have probably talked about being subject to regular internal and external audits across Security Financial as well as procedural aspects of our business because we do all have all of that at Second Bank right we are the world's first digital asset bank with a banking and securities firm license in Switzerland and the number of CMS licenses in Singapore and we are serving private relatively individuals and institutional clients as well as corporates being active in the DLT space across the globe but instead since I didn't anticipate these developments over the last 24 hours I chose to talk about the more forward-looking topic namely the emergence of something that people call cd5 so centralized decentralized Finance or institutional D5 if we look at today's market it's quite divided between centralized players who offer services such as custody trading lending and other types of activities related to the managing of crypto assets and there are on the other hand side D5 protocols operating decentralized infrastructure to facilitate simple Financial use cases by operating decentralized Landing pools decentralized exchanges and other types of business activities and obviously there are a lot of different Shades of Gray if you look at the players in the C5 space you know the D5 space be it when it comes to the level of centralization versus decentralization the level of governance the scope of offerings but obviously also and not less importantly from our point of view their regulatory status obviously it's easiest for me when we have a closer look at the C5 players to talk about ourselves at Signum I think we're proud to say that we have achieved a lot in terms of being able to offer regulated crypto custody staking spot and derivatives trading Services we're offering loan board loans against crypto currencies as collateral we do offer hash rate backed loans for mining companies which means that mining companies can draw a loan by in return and using some of their hash rate their mining productivity as collateral with us we have been quite successful in tokenizing real world assets and most recently we've also launched an Institutional grade nft platform the first of its kind operated by a bank worldwide and all of which was only possible because we had the privilege to be working together with a very Progressive regulator both in Switzerland and in Singapore and especially in Switzerland to work with a very Progressive regulator was complemented by the fact that in Switzerland we had the pleasure or privilege that uh quite forward-looking legislation entered into force over the course of 2021 when more than nine federal laws were amended in order to provide a robust legal framework to conduct businesses that are dlt-based and obviously also to operate in dlt-based securities but there is also a big butt I mean there is always a butt to everything right we were stopped with our most forward-looking and most disruptive initiative when we wanted to offer our clients to be able to deposit and borrow assets into and from the other decentralized Landing pool and as it stands today there was no way for us to convince the regulator to allow us to do so because the regulator has too many concerns and sees too many challenges and open questions as to allow us to allow our clients to interact with the decentralized landing pool such as zombie even if we made use of RV Arc The Stance of the regulator is very clear as it is conceptualized today they will not allow us to use it which basically means that ourselves but also our clients are being prevented from taking benefit of what decentralized Finance has brought forward which is something that I personally but also we at Signum do not want to accept because we feel the power of Defy is too big to be ignored too big to be neglected and too big not to be embedded into the into the provision of regulated Financial Services wow which brings me to exactly the topic that I wanted to cover today which is cd5 or institutional defy I think the idea is fairly simple if you look at the slide right it's really about bringing these two spaces together uh obviously from the C5 side and especially the regulated C5 side it will be about bringing uh and honoring still the all applicable legal compliance and Regulatory Frameworks especially when it comes to kyc AML but also Market conduct and investor protection mechanisms and on a D5 side obviously it's all about taking benefit of the technology infrastructure that is that has been built and optimized over the last couple couple of years and bring them together to efficiently work together I mean one example could be basically a further evolution of Ave as a decentralized landing pool right or I have to say a further evolution of all the arc as a permission decentralized Landing pool where only such institutions would be permitted to participate in such a landing pool that comply with all applicable regulations on the one hand side but on the other hand side also do have regulatory approval in order to allow their clients to take benefit of such a decentralized lending pool now obviously there are a number of challenges and I think our dialogue with the regulator has shown us that there are a number of challenges concerns and open questions that need to be addressed and solved before we can bring cd5 to fruition I think first of all it's about the technology infrastructure that is to be used right I think there for me it's very clear let's not reinvent the wheel I mean D5 protocols have invested so much time and effort to optimize the technology it's not up to us to question that or feel that we need to reinvent anything on a technology level but it's about it's up to us to solve the regulatory questions that I have referred to earlier around kyc AML and other aspects of regulatory Frameworks that need to be adhered to but it's also about solving questions around data privacy versus data transparency especially when we want to use public blockchains in the context of cd5 solutions it's about solving questions and concerns around cyber security and governance aspects especially when it comes to the deployment of new smart contracts into such cd5 operations but it's also about solving legal questions around for instance the enforceability of contractual classes that are embedded into smart contracts and whether they uphold in front of Court as well as it's about it's solving questions around recourse mechanism or reversal mechanisms a widely known Concept in traditional finance that may or may not be equally replicated when using decentralized infrastructure but obviously Innovation is always difficult right if it was easy we would have seen a number of cd5 offerings already having emerged but I also don't think at the same time it's impossible to create and operate a meaningful functional and value-adding cd5 solution currently as it stands cd5 is still it's in its infancy of course very few players have started exploring it I think we've heard it this morning also when when Stanley spoke on the main stage that there is one project that in particular has caught quite some public attention which is project guardian a project that was brought to life by in a joint effort by DBS um Oliver Wyman Onyx by JP Morgan and SPI digital asset Holdings SBI digital asset Holdings being one of our investors at Signum and they did it and that's particularly interesting they did that project together with Mas the Singaporean regulator and the idea or the goal of this project was actually to see how institutional defy could unfold its value in a fully regulated environment and the initial feedback and results that were recently published were extremely promising and positive so I still hope that many other projects will follow and I think Signum will try to make a major contribution to that development and the reason why I'm stressing project guardian so much is because I think the approach that these players have taken is super smart a they've brought together a number of digital asset Savvy players financial institutions regulated financial institutions across the globe and they've been working closely with the regulator involving them from the very first step in the solution design in the conceptualization of the solution rather than trying to find the technology solution that works trying to find the optimal user experience to then present that solution to the regulator and putting pressure on them to react to it that involved the regulator early helped him provide input along the way such that at the end the solution that will emerge out of that process will be a one where a regulator will have a very hard time to say oh no we still don't feel comfortable because they've been part of the process they could have intervened much earlier in the process which I think makes the setup very powerful and I think the last element why I believe it's very powerful is also because the project didn't feel they need to come up with a private blockchain they didn't feel they need to solve technology issues but they understood that they can just use a forked version of avid in order to facilitate those use cases and I'm very much looking forward to seeing many more such initiatives going forward and I would also invite all of us to contribute to those developments in order to close this I think none of us knows what is CD fire institutional defy ecosystem would look like in the future neither do I but for me there are a number of components that are very clear I think one is there must be something like decentralized trusted identities I think in an Ideal World a participant in a cd5 offering does not have to identify themselves and undergo a lengthy and extensive kyc AML procedure whenever he or she wants to interact with the DC cd5 offering but they can do it once with a trusted party and basically then that vetted identity is embedded in everything they do it might be periodically need to be reviewed reviewed and renewed which is a regular normal process but it cannot be that whenever I interact with something new with a different provider with a different type of offering that I need to undergo the very same process over and over again as I think the second element is that again on the technology level let's rely on proven and already established Define infrastructure there is no need to reinvent the wheel really I think there are companies who have done that a lot of developers who have done that year after year so let's just use it it's there and it's open source and we can make use of it I think the third element to me is full legal and Regulatory Clarity what I said before but it's not only the legal and Regulatory Clarity but it's also the buy-in and the commitment of regulators and lawmakers lawmakers to support such initiatives and such developments and finally I believe we need a number of trusted and well-governed parties to act as the Gateway for end clients to interact with these cd5 offerings in order to be able to take benefit of it and unfold their true value and with that I'd like to thank you very much it was a pleasure and I love your deck it's so stylish well Don thanks for that how are you finding being in London but that's a I used to live in London for for a half year when I was younger it's one of my favorite cities so I love to come back and so what do you think about what's currently just happened with the whole binance and uh FDX saying what's your view on it well you know I'm not sure I've already had the time to to create a view on it I think I'm more concerned about standing here on stage while my team's in credit lending in trading or trying to make sure that all our panicking clients are being taken good care of I mean we are not exposed to whatever is going on with FTX whatsoever but obviously we see a lot of clients who are who are unsure about what is happening in the space want to withdraw assets from FDX bring them to us into Safe Haven if I may say so so I would love to be with my team taking care of our customers but I'm equally happy to be here with the audience you know ultimately I think it's kind of a step back for crypto and when you start to see um a fall of a token price a run on a Peg and ultimately over leverage with poor oversight I think and certainly from my background of coming from traditional finance and working for a tier one hedge fund who've always wanted and had interest at the digital asset space I think now the questions I'm going to get is what the hell are you guys doing over there how do you view it well I mean I don't know whether it's something that we are doing right it's just something that is happening in the industry I think we cannot prevent it I think for many of us it has come as a big surprise I mean absolutely FTX was always kind of the Hidden Champion I mean I think everyone admired SPF and what he did and also what he stood for so I think it came as quite a surprise and it is definitely it's damaging for the industry it's definitely damaging for the perception of crypto but I'm sure we will recover and have a lot of confidence that people will understand you know when you look at what happened with Luna Terra anchor three hours in Celsius which were all C5 Type plays um actually when you look at traditional defy and what happened with Caper uh compound Ave um everything on the traditional D5 protocols actually function quite well and that was that was really great to see there was almost a battle test going on and that was pre-merge with ethereum so I think that was quite interesting as well to see that yeah exactly that's why I think we need more of that I think we need to embed exactly this into what centralized Finance is doing at the moment and I think be it D5 or C5 I think ultimately also regulation has a certain value right because it it makes sure that things are properly governed uh the the right standards are being adhered to and ultimately customers are protected and that's what we're here for that's what we stand for really above a big round of applause for Thomas well done Thomas excellent presentation thank you so much thank you