Unleashing Market Transparency | KBW2023

[Music] hi everyone Welcome to our riveting panel on onchain data to level set no Financial advice today but we're going to be covering a lot of exciting topics around Market transparency regulations and really overall opportunities within onchain analysis I'm super excited to be joined by Our Guest Kong from crypto Quant as as well as Miguel from uh Arkham intelligence you know kind of want to start with just a brief background on yourselves and your companies and what you do hi um I'm key um I'm a software engineer and product manager um derivative Trader um crypto Quan is uh onchain data provider um for financial institutions and Retail investors we've been uh around since 2018 um focus on uh flow data uh which is is for based on address labels and trying to find um some tra actionable insights uh out of onchain data so I'm Miguel I'm the CEO of Arkham we are focused on our vision of De anonymizing the blockchain uh essentially what that means is we ingest data from a variety of different chains including uh ethereum and Bitcoin polygon arbitrum a number of other partners B&B chain Tron um and we essentially uh do similar things including address labeling uh in order to identify the individuals companies funds exchanges who actually own uh the the blockchain addresses that people are searching on our platform uh and then users uh actually use the data to then either try to find Alpha and extract information to improve their trading uh or for risk management purposes to try to understand who owns what what sort of actions have they taken in the market previously um and in order to better you know inform and protect themselves as as users yeah and my name is Josh Han I'll be moderating today I'm the head of strategy at wond struck we are a cre creative Studio focusing on designing and fundraising for the biggest brands like sui uh and a lot of the other blockchains that they work with want to go kind of into first you know your experiences in creating your startups both of you guys are experienced entrepreneurs have you know both crypto ogs how did you guys find this opportunity that made you want to start your individual companies and like the overall Market opportunity on onchain data Miguel if you want to go first sure um so before this I worked on a stablecoin um and so you know during that experience you kind of end up learning that your users uh all the the extent of the information that you have on them at least at the time uh this was back in you know 2017 through through 2020 um you basically only know the ethereum address that that they use you don't necessarily know as much as you would understand uh at a web 2 company right so at a web 2 company you get a bunch of information via you know the app store or the account that is being made on your platform where you know who the person is what they're using your app for and a bunch of information about their demographics uh this did not exist and still to this day does not exist to a very large extent in crypto uh if you're a token project uh the extent of information that you know is essentially the the ethereum address of your user uh and then all of the transaction related information that that ethereum address has made uh which isn't necessarily the most useful thing for building a really big fast growing startup you want to learn as much about your customer so that you can make uh really great product decisions essentially um and so my vision was to using publicly available information um that exists natively on blockchains uh we would be able to provide much deeper and and more granular info on those actual you know people who are behind and the owners of those blockchain wallets to you know projects exchanges uh and any other kind of Market players who who were interested in that data got it ke what about yourself um I I was a Trader um I mean I I I I worked at uh cryptography company as a product manager and I trade Bitcoin a lot I made a lot of money and I lost a lot of money and then I realized that um there's going to be some uh alpha or you know data that that I can use for my trading and then I uh look into uh onchain data to figure out supply and demand when it comes to uh trading currencies Forex uh if you know uh supply and demand there um it's you can beat the market so I was trying to figure out U what's the supply and demand in Bitcoin and ethereum and um I start labeling exchanges miners and other entities um and then you know I found some um meaningful insights there so uh that's where where I started um I started my company for to find some Alpha signals there indicators but right now I really think we can be we we can um aggregate all the data around the world um supply and demand data for commodities toonize Securities and others imagine you can you know imagine you buy orange juice using usdc and Bitcoin in convenience store uh you know you can basically aggregate all the supply and demand across the world um for orange juice and then you can um when when you figure out all these supply and demand data um you can build quantitative Mo model for monetary policies so basically interest rates and and others can be determined by this data yeah right I mean the commonality I hear from both of you guys is that really your product oriented Founders that started really building for yourselves right um and I'm curious you know you come from a trading background more of an entrepreneur within defi stable coins um but really what are the type of customers that you guys serve now and you know who are you guys providing the most valuable value to today me first yeah okay um we uh we've been focused on retail investors uh since 2018 to 2021 um from since last year uh we pivoted our business model more focusing to in financial institutions especially in the US um because uh we realized that our we our sign of users was basically 440 thousands uh thousand across all the uh countries um but now really it really like diminished um like uh half a percent was uh decreased so we start engaging with financial institution in the US since last year and we partner with CM group um we are the only onchain data provider for a CM group and it's um partners and we are partner with uh Moody terminal and other um you know traditional F uh ter Terminals and and after that uh we on once we gets more presence among uh financial institutions they uh ask us some data for uh their risk management so um as well as fundamental data for some narratives so institutions they are basically ones to manage their uh risk for their funds uh crypto funds or you know ETF funds and other um Equity Funds as well which is comprises of minor stocks and uh secondly for the fundamental data like network data you know the number of addresses the um hashr these type of data um has been used for by um broker broker Services um who wants to sell their funds like saleside funds or you know market makers and others um so yeah a lot of financial institutions is the ideal customer same for you Miguel um I I think we're still learning a little bit about about our business and about the the kinds of customers who who come in it's still like a little bit of an an exploration for us as we analyze more and more data um as we continue to get users uh obviously crypto Quant has has been around for for quite a while now um and so they're they're more mature and in understanding uh all of these different segments um presently however what I will say is the majority of uh Arkham's users are are retail sort of by like net amount of uh of users who are using the platform um it's still uh retail Traders however something like 20% of our user base is is institutional um so I would say maybe 80% retail uh investor 20% institutional uh and then within the institutions who are using Arkham uh I would say the majority are are are hedge funds uh other kinds of you know quantitative trading firms market makers uh and uh larger players who are you know essentially looking to understand more uh about the market protect their positions uh and these sorts of things I think uh often times for example people will will want to use Arkham to try to understand uh more about uh the tokenomics behind a project right they want to know uh more about what The Insider Supply looks like um obviously uh these things are super important I think that that that vision for being able to aggregate supply and demand uh is is incredibly important and I think Super valuable um I think we are um like one of the things that's more of a differentiator is um I don't think we have as much aggregated data uh and and information as crypto Quant um but we focus more on kind of like the individual granularity for a particular Trader uh or like portfolio of an investment company or like VC right so if there's one particular individual or particular token that you're studying um I think that you know you can come in and and analyze more about that tokenomics um you know that particular holder um but maybe not necessarily as much in terms of like an aggregated view um and it really just depends on your uh investing style uh which product makes more sense for you got it I mean that makes a lot of sense I think these guys have almost created a subset of personas called like onchain sleuths right now right the these are Twitter lurkers these are the guys that are going out there digging in and finding the frauds uh the scams but on the other side we also have you know postmortem people who are looking at your services for things like you know uh post hacks post events you know specifically in Korea right now like crypto is a very political issue we have things happening with exchanges we have things happening with projects token listings uh the whole nine yards curious you know what kind of relationships on that side do you guys have with either the Korean government and if not governments in general uh I I can start with this one I so Arkham doesn't have any relationships with with governments including the the Korean government um what I will say though is that at least with our platform basically anybody can just go go on it in the same way you can go on ether scan and just look at the information right like the whole point of these blockchains is that they're incredibly transparent and so all of that data is publicly available we're just a tool for people to be able to access that in a more more sort of easy way right um and so the reality is is my understanding actually um is you know from looking at a bunch of these like government documents obviously as unfortunately a lot of these companies went bankrupt or there were crimes committed fraud Etc um there's actually a lot of information about the investigations that go into it after the fact that come out in court filings or you know public rulings or you know information that's presented by the government while actually like convicting these companies or investigating them uh and I actually think the most popular tool for governments to use to investigate crypto is ether scan I think that that is like you know I think there are more advanced tools that are specifically catered towards the government such as chainalysis or or an elliptic I think those are you know they're obviously bespoke Solutions specifically for the government use case um but in our case basically anybody can come on and and analyze this data um and that probably includes like government people um but you're totally right in terms of the two different different kinds of segments um I think there are the people who are looking to extract information Alpha uh and uh and do risk management but there's definitely also the crowd of people who are basically trying to do post-mortems on big failings hopefully there will be fewer of them in the future so hopefully that market decreases um but yes that those those are two very kind of big markets for us um yeah we uh we had a business model for Korean investigation a uh government agencies before back in like 2019 we soled uh some of the cases like in including enang en room uh one of the biggest sexual child abuse case and you know kiman bribe case and others but like the problem with Korean government is that you know they don't share uh the revenue I mean like um we we we we can get like you know uh a couple of thousand doll per uh case but for if you see chain analysis case and others uh the IRS they basically share the revenue as I know um once they see sees the Bitcoins um and unlike Arham Arham has been really uh great job when it comes to uh decentralizing onchain investigation uh we're not investigation Tool uh like that much granularity we aggregate the data and give them uh some quantitative data sets um so one of our uh clients are uh WTC and SEC um and other government agencies they in ask us some data when uh FTX and binance F was going around um so we gave them proof of Reserve data and other proofs um so I think the their uh onchain solution will be um split into two two ways for one uh granular investigation tool like Arkham and like us um you know some numbers um should be you know there's going to be way to you know match these numbers are right or wrong yeah right yeah I'm I'm hoping the people that work at these agencies aren't just using ether scan I'm sure they want to take advantage of the platform that you guys have built on um but I think this opens up a lot of interesting conversations around like Market transparency and kind of the ethos behind crypto right there's the cipher Punk movement around privacy self- sovereignty and then kind of what you guys are working on as crypto gets becomes a bigger Market we need more transparency we need Regulators to come in and we need accountability within you know important actors I think you know everyone in this audience agrees that we need less FTX less Luna Less hadu Bank things like that um do you guys view yourselves and your you know respective companies as an accountability solution or more of a you know Fe neutral kind of solution or tooling uh capability I think for us the answer is definitely um you know blockchains and crypto as a whole has kind of existed in this weird Middle Ground of the technology and underlying fundamentals being completely transparent and publicly available uh but still very hard to find and OB fiscated right so despite the fact that these blockchains uh contain all of the relevant information about what exchanges hold what who made which transaction who's stealing money who's losing money who's making money you know uh net assets things like this if you don't know who you know which address belongs to whom and you know who they owe what to it it's very difficult to actually understand what's going on with these business businesses that hold coins right and that includes exchanges or luna or you know any of these other projects where you know they they might they they are holding billions of dollars but you have no idea where that money should be going in particular areas and so uh as was mentioned earlier I think that uh things like proof of reserves really help I think it doesn't get you 100% there um you know we do some of that work naturally via our labeling obviously you can go on our platform and then see how much money people hold but we don't make any claims that that's all the money that they hold it's kind of like a a bare minimum and even then it is us making a you know an attempt to identify all of the people it may not be you know necessarily uh 100% confirmed all the time we change labels and you know we can obviously uh update based on new information as it comes into the market um just like any other Financial tool um but the reality is that it can be really difficult to understand what's going on on chain uh and so you know tools like Arkham or or crypto Quant can you know make it easier and more accessible to get the information that's necessary to understand what a business that has onchain Holdings is actually doing with those Holdings we can't see the liabilities you know we don't know how much money they might owe somebody on paper or how much money they owe the customers um but you can for example see if if a run in the bank is happening right based on the withdrawals for example so there are ton of these kinds of use cases and uh and as a whole I think we make it more accessible to hold uh different kinds of protocols or exchanges or kinds of crypto companies uh accountable it definitely makes it more accessible um but again it's just one of the tools in the tool shed to be able to do this um I agree on 's uh opinion because um you know what we're doing is not full full deionization we're more like semi Deon anonymization um because we we found find some patterns on onchain data and then we label some certain entities or you know if we don't name a certain entities but you know we just name the pattern there you know uh the number of addresses that holds over 10 Bitcoins for example so these type of insights and Deon anonymization doesn't ruin um the you know SE uh privacy for uh blockchain so I think um yeah uh we're good yeah yeah that makes a lot of sense I think we need this accountability solution right um and a lot of these conversations regarding future scams frauds are happening in a lot of different places but where are you guys having these conversations you know when you see something suspicious on chain are these a lot of internal discussions or do you kind of how do you bring them to light right because there's only so much that you guys can do as platforms um just curious like where are these conversations in terms of like how do we make sure sure that the industry becomes more transparent and accountable where are the where are these conversations happening um I think for some entities like exchanges and other you know regulated entities they should disclose their U not addresses but you know the number of uh Reser balances or users for example and then there uh there there should be some audit firms like onchain audit firms that who try tries to match their data and its onchain aggregate Matrix um so for example binance and other exchanges they started to um disclose some proof of Reserve but um these type of proof of Reserve not always like accurate sometimes like they uh uh they skip some numbers there so that they can you know uh hide something like some illicit activities so I think onchain AI firm should be uh you know if you if young entrepreneur here U watching us you should like start onchain audit firm I think I think an onchain audit firm is a pretty good idea for sure um a lot of the discussions definitely happen internally just because there's so much to talk about right you've got hundreds of blockchains realistically only a couple of them are actually used and have real activity um but there's millions of transactions happening every day billions of volume one would hope um and there's always something interesting going on uh maybe not all of it is Shady but there's definitely stuff to to think about and to discuss and so I think very naturally the majority of the discussions happen within our teams uh either between Engineers or between analysts for example um but then when there are certain things that that need to be discussed uh I would say the main medium by which that can happen is Twitter yeah like the majority of the time that is where a lot of the discussions are being had uh and where people will I guess call out there there's sort of been a culture in crypto of sort of bringing things to light or calling people out and saying you know hey this looks weird somebody should explain this uh or like you said that culture of onchain sluds going around and uh and talking about all of the happenings on chain um those are super popular as well uh and so I would say a lot of it happens with with either within at least in my case within our company internally uh and then any external discussions are happening via Twitter right I mean I hope people to continue to use Twitter as this public forum to have these conversations uh but like you said there's so much data out there and it's almost kind of there's there's a lot of people looking for attention right calling out things it's almost like the news cycle of like they just want the headline and they'll say you know X wallet or ex um exchange is doing this they're dumping uh how do you guys go about when you know you guys were working with such big large data sets I think it's has to come to a point where there are moments where things are mislabeled or in incorrect information goes out there what is the process look like when when that does happen and how do you guys like you know either manage the situation or increase the you know pain from it so in our case um you know we have hundreds of millions of labels on on on Arkham right and so you know even if you have a tiny fraction of a percent of a margin of error you know in an absolute sense it's a meaningful number of of of labels right so you know even if we get 99.999% of onchain volume correct you know you have to account for the fact that there's like 10 trillion of historical volume that has been traded using blockchains and so um like I said it's it's it's a lot of money even if it's a fraction so we aim to get everything right um many cases it can be disputed right people can go online and say that you know your information is uh is incorrect and I think the process for fixing particular issues is essentially just the inverse of having made the label right when we push label uh it's as a result of a combination of two things uh information obtained algorithmically right so information that is obtained uh via you know using our own machine learning and data science tools in order to to to make the attribution in the first place um and then a group of humans at the end of the day being the back stop uh to verify that the information is correct or not right and so when there's a dispute uh which by the way we have a button on the Arkham platform where users can submit information to you know dispute a particular wallet label to us privately uh and now we actually have a way to award those disputes um unfortunately or maybe fortunately most people don't do not opt to use that button instead they yell at us on Twitter which is okay because we end up solving it anyway um you know we then will review that right and then a group of people will go and sit down and actually assess that information uh and see whether or not the dispute is legitimate or if our information is actually holding up right uh and and and we've even had discussions uh on Twitter in particular cases where you know a bunch of members of the community you know maybe didn't necessarily agree with one of the labels that we put out um I think I still I still hold strong on that I think ultimately that ended up being verified but you know we have these public discussions and uh you know potentially even disagreements and people have to Hash it out in a in a debate format to figure out ultimately what everybody cares about which is what is the truth about who this wallet belongs to and what is going on yeah yeah um you know discussions on Twitter uh it's it really helps to uh you know clarify whether the label is the data is cor right or wrong um for us uh when it when it we our clients they're you know fin traditional Finance institutions um you know if if you are uh work at workan you you really need like um the most accurate data uh when it comes to your building your Alpha signals so um we we're TR we've been trying to make our labels more like less less false positive so that we don't mislabel um we don't use our other like social crowded uh labels from other competitors like will aler you know be infoart and others so that's why it's a natural selection oh that's why Quant firms they Cho chose us over other competitors that makes a lot of sense I I do want to go into like hard incident response and things like that but we don't have that much time um really like when I go to your platforms I value the visualization of the data right um but a lot of people I think a misconception that they have is like I feel like I might dox myself maybe if I go on your platform do you want to address people that like you know what is their relationship with public blockchains as well as you know what are personal obects that you guys are doing um in order to make sure that you're staying you know well uh protected on public blockchains so I think in general one of the things that is super important for people to realize as a community is the fact that when you're making cryptocurrency transactions on ethereum or when you're making cryptocurrency transactions on bitcoin those those transactions are broadcast to a decentralized public network which is available to everybody and is immutable right and so in that sense if everybody begins to educate themselves on what information becomes publicly available when you make a transaction and you generate an address uh versus not that's the first step right for sure uh then afterwards you get into stuff like you know not reusing addresses potentially using other sorts of privacy tools uh and then naturally you know um as most people in crypto are are very familiar the sort of exchange black box of the hot wallet uh being a very interesting way to op thecate uh transactions right you know who who necessarily even needs tornado cash when you can just deposit onto a centralized exchange and withdraw at the other end right so there are a bunch of these sort of tactics in order to preserve uh one's privacy it's definitely not a lost cause I also think that these things um can exist together in tandem I don't think it's necessarily true that if onchain analytics tools exist then there can be no privacy that's definitely not true you can have privacy tools uh and you can try to you know keep yourself private while not necessarily you know exposing yourself to to all of these uh platforms but to anybody using Arkham we don't use any of that information in in in in any way unless it's you know disclosed on purpose um we don't dox people as well um we we just label um regulated entities and some if our clients asks us to label some certain entities like for example um we we do have mining pool labels but if they ask us like can I you know clarify uh you know Founders wallets of marathon digital which uh Marathon digital is um listed stock in the in the US so uh in that case like we do did do that privately but not like disclose all the labels to other clients um and personally I use exchanges centralized exchanges most of exchanges they you utilize High wallets for to process withdrawals so your privacy basic low level of privacy will be guaranteed if you you know um create new address and then move your money to your new address using um centralized changes thank you for the tips last question as we close I I love that you guys mentioned you know to the entrepreneurs building out there what you would build today but if you have to go back in time and talk to yourselves and give yourself advice to like you know a potential entrepreneur in the audience what do you think you would let them know about like you know coming to a startup working on onchain uh onchain data do you guys have any advice for them or words to younger self as we crap it's going to be a lot harder and a lot longer than you think it's going to be um yeah it's a it's a it's a marathon don't like do play the short games especially in crypto you will be smashed awesome long-term games with long-term Partners thank you everyone for joining our panel thank you to our guests please help me thank them thank you thank [Music] you