Are We Still at a Kindergarten Level in Institutional Crypto Adoption? | EBC11

Hi everybody. Um, thanks for putting up with me for a second time in case you saw me being on the first panel this morning. Um, but I'm super excited by this one. Uh, we're going to be focused today on institutional adoption. What level is it at?

I've I've been now in crypto for eight years and I swear there's always a panel on institutional adoption every year at every conference. So it feels maybe a little bit mundane, but we're going to try to make it uh much much much more interesting and um go deep into some of what's really really happening today in the market with some of the experts that we have here. So before I get started, I was out um speaking with a few people in the VIP section and I asked a few people what they thought about where institutional adoption was and I would love to see if anybody would help me out and give a show of hands if you guys think that we are at the kindergarten level. Um and and if you guys kind of agree with that, maybe you can put your hands up just to get a feel of what people kind of in the audience think. Okay.

I think I feel I think I feel the same. Um but with no further ado, let me hand it over to my lovely panelists uh to give maybe a 30 second one minute introduction on yourself. Maybe Leor, I'll start with you at the end.

Sure. Uh so hi everyone. My name is Leo Lamesh. I'm co-founder and CEO at GK8. Uh GK8 is a Galaxy company.

Uh we've been acquired by Galaxy 2 and a half years ago. Uh Galaxy is a NASDAQ listed company uh a market leader in digital assets and AI. Um we started GK8 since 2018 with the mission of increasing the level of trust in the market by providing the most secure self-custody solution. Uh we are leveraging two core solutions. the impenetable wallet which is the next generation cold wallet uh which can make communication with the blockchain without being connected to the internet and MPC.

We are working with traditional financial institutions and cryptonnative companies who are using our solution to offer services such as custody tokenization staking and defy. uh we're working with clients such as DTCC in the US uh with the prosecure uh here uh all unity which I shared at the stage before about their fully regulated Euro stable coin. It's part of a DWS Deutsche Bank project uh and I'm excited to be here.

I'm Kevin Ryu working for Swiss Bank Europe, a Luxembourg based bank part of a Swiss group. We do provide trading and custody services in all types of listed assets for both retail clients and institutional clients and uh clients can trade either you know stocks, bonds, ETFs and you know crypto uh since 2017. Clients can uh either have the custody with us and trade on states with us.

Hi all my name is Andrew. I work for Setabe. Seekabe is Switzerland's second largest bank and through our subsidiary Swissto we are also Switzerland's second largest asset manager and there I drive various digital asset initiatives for example digital asset custody.

Hi hello everyone my name is Julie I work for six months uh which is a fund regulated uh fund manager based in Luxmbbo. Uh we got the license from the regulator in Luxmbbo a year ago, a little bit more than a year ago now uh to be the first uh and still the one uh fund manager regulated in Luxmbour to manage crypto funds uh and VC funds active in rep three and crypto ecosystem broadly. Given we have a great group of institutional experts on the panel today um my view is is infrastructure is really really critical to adoption. I mean there's a number of factors critical to adoption but I think infrastructure is a core a core piece of that puzzle. So with that being said, I wanted to start off maybe with you Andre.

Um over at uh uh ZKB um you guys have launched, I think quite early on in the Swiss market products and services to support clients from a brokerage capability perspective. I wanted to ask you a question around infrastructure. Do you think infrastructure from your perspective and the company's perspective is still at um the kindergarten level? Are you seeing gaps in terms of the infrastructure architecture you guys have deployed? Is there anything that can kind of help us grow up maybe to that middle school or high school level um age group?

Well, generally I think there's been a great leap from providers providing tech solutions. What it still feels like patchworking. So for us integrating it into our bank's infrastructure, it's a lot of patchwork. Not just let's say new technologies onto old technologies, but also in between the newer digital asset players. So I think while the technology from a ground up is there and there are great solutions, question is when will we get standards and best practices.

Um we see that on the trading side but apart from that I think we're still lacking that. So um that's in my opinion the next step. Yeah.

And Kevin maybe from Swiss quotes perspective how how are you seeing it? Is it is it just the infrastructure side that needs to grow up? Are there challenges with client readiness regulation? And I mean maybe you can kind of build on what Andre just mentioned.

Yeah, sure. I think in terms of infrastructure, we're not so far honestly. We have something right now. It's it's working. Clients can come with us and with you as well or everybody.

It's it's existing right now. I think it's just a matter of adoption. Uh clients need to understand that they can do they can launch the project. Uh they have to uh convince their investors and their clients. So I think it's more matter of user adoption, client experience as well uh for the end clients.

uh but in terms of infrastructure it was the very first step I think it started probably in 2016 17 in the market now we have something we need to improve it for sure but uh we have something right now it's not the biggest issue that I can identify as of today

and Leor from from your expert security and technical perspective I know I know you feel that um from a client readiness and your institutional client base security comes into play a lot especially as it relates to the market's understanding of what custody can bring for the market to actually truly adopt and kind of see this at scale. Can you talk about that from from a gap perspective and how the market's maturing?

Of course. Um, so I think that the readiness from the security perspective is really still in early stages. Um we still see eching events in uh digital assets reported on a monthly basis and a large amount is stolen every time and um especially now with regulation become more clear especially in the US since the beginning of the year and also uh the adoption that is going uh um generally uh I'm confident that we will see more and more um traditional institutions that will be hacked as well right we've seen uh recently companies such as by bit that hacked for over a billion dollar. Uh they used Multic and HSM technologies. Uh we've seen in the past uh liquid which is another Japanese exchange that was hacked for uh while using MPC technology.

And that's really taking me to the point that there is some misconceptions today in the market as to what should be the market standard when it comes to uh security and blockchain. uh private keys eventually is the one point in blockchain that make it centralized and uh in my opinion it's the one thing that is the most important to protect right blockchain is irreversible protocol and we should do everything we can in order to avoid this private key uh do something that it didn't meant to do and I want to explain a little bit around it of how hackers think right hacking is a business and uh how much hackers will invest to compment into a bank it really depends how much you can It's about ROI and hackers will invest millions to steal billions. And um based on on my experience in in the prime minister's office, it's safe to assume that $1 million is what hackers need to invest in average in order to compromise one public internet connect to computer. Uh so basically in order to compromise a multi-IG or even MPC which is again commonly uh preserved as a sufficient solution for custody that's clearly not the case because the ROI for hackers to invest few millions to compromise few public internet connect computers and still billions is there and then on the other end there are some uh cold wallets which are not necessarily cold they're all connected at some point either uh with a micro USB cable or coden camera or some uh thumb drive that taking information from internet connected computer to another computer that's supposed to be airgapped but they all become odd once they receive input from uh internet connected computer uh and that's why GK8 we come with a new security approach which we call impenetrable custody we're able to do the full process of creating signing and sending transactions to the blockchain uh which could be served for custody and tokenization uh without ever receiving input from the internet um and we truly believe that that's you know the approach to take in in order to increase the readiness level uh from the security gap when it comes to private keys.

Thanks for that Leor. Um so we have three asset manager um uh companies on the panel and then one custodia one custodian here and I want to bring it back to um Julie and Julie at 6 months monks my understanding is you you guys I think are the first uh alternative investment fund manager uh regulated out of Luxembourg and I think that you guys offer a number of thirdparty funds um for digital and crypto to your clients. Maybe you can talk a little bit more about from your perspective kind of distribution of funds in terms of what client traction has looked like over the course of the last few years and how you've seen client demand pick up or not or any challenges around that um side of the business.

Yeah, sure. So I think that a year ago I was in the same place explaining that in Luxmbour now we had a solution where we could make uh a regulated fund fully operational uh with all stakeholder around it. So today I think that there is not about the why but more about the how. Uh we we can do it in Luxumbbo and we see more and more investors and more and more form promoter from the institutional space wanting to go on this asset class. And the idea and their question is more how we can do it with the same standard and the same uh expectation than in the traditional finance world like for any other asset class like private equity for instance.

So it's like where uh an actor like six monks uh come into the play and uh provide the full turnkey solution in terms of uh fund structuring, fund management and administration because we provide uh in terms of risk management, fund administration, valuation oversight uh all the the the appropriate regulatory framework that those institutional investors and fund promoter need actually uh to attract more capital from institutional. So we see more and more traction. It's true that there there are still gaps to fill in uh in terms of education in terms of understanding uh because there is a gap uh I think when you come from the native crypto space and that you want to enter uh the the the full regulatory landscape. Um and we are there are some actors like us like Riscot like other custodian institutional grade custodian they can provide and fill this gap actually uh to make this adoption growing and in terms of distribution uh we see more and more uh solution actors regulated like investment firm in the in the in the sense of the European regulations that are ready to provide solution and to provide platform to ease the distribution and the marketing activities of SFont.

Just building on that a little bit maybe for Kevin and and Andre. Um given my my role at at Widen, I I work with a lot of banks and brokers and lead sales for them. So, and I've been in the crypto space for eight years. So, I've seen a lot of different use cases play out and success stories and um different factors that play a role in companies adopting this you this this asset class and and these new instruments and products and how they think about going to market. In terms of that, how um how has it been for your companies when you're building a business case and you're trying to get this approved?

Clearly, you both have live tangible products out there. But if you were to launch, I don't know, a new tangental business that had to still do with crypto or a new instrument um or a new product line, say you're only offering spot, but you wanted to move into a derivative or some sort of CFD structure structured product. How have you seen it? Because the way I've seen it traditionally over the last number of years is the banks have to build the case and they have to go to their senior management, their seauite, their executive board and they have to get the buyin for the budget and the case and they have to show these assumptions that the market's going to move in the direction that this business is strategically going to be profitable. Is that still happening or do you think there's enough, you know, optimism and enough kind of optics that are positive in the market that are making it a lot easier for you even if you're not profitable today to kind of have that buy in to really build and scale properly at the level you might want to into the future?

Well, I differentiate between two things. Um the first thing when we talk about crypto as an asset class, so we see a real business case, we see the demand and I'm sure we're going to touch on that um very soon. So that's that's an easy one because you actually make money doing it, right? And um a lot of banks have proven it and we are seeing that now for like 12 months as well. And then the second thing I call it hatching.

when we talk about tokenization and we've been part of the first wholesale CBD project. We've been tokenizing bonds for years now and so on, but it's more like experimenting and I always think it's kind of a hedge. So once tokenization will take off, you're not left behind, but it's more like an investment to not be left behind. Right now I don't really think it's a business case. So you have to very differentiate.

Both has a place. Um, one there's a clear demand. The other one still in a playground stage in my opinion.

Yeah, I can confirm 100% what has been said. Honestly, it's very easy to convince the top management that we need to launch a project on crypto. It was way more difficult in 2017 when we decided to move forward at first, but now today every crypto project is very profitable from scratch. Honestly, uh it's not very costly to develop something since you already have the custoation in place. It's the most uh it's most costly part at the beginning.

Uh for the tokenization, we see a big appetite from investors on the private markets. So we can see an opportunity for a bridge between you know the crypto digital assets world and the private markets. That is a market with a huge appetite. So I'm pretty sure that it will be very easy for us to develop it in the future. Not technically, but from a client's perspective, it's easy to to have the investments coming.

So it's not really difficult for us to to to convince the top management and uh but we listen to our clients basically we don't come to a project if we don't have the clients demand that's how we proceed on this part.

Yeah from technology provider perspective um what what we see that made clients happy and project successful uh are a few uh um main anchors that that we seen. So for example uh a real world project that we did around tokenization which is uh the Euro stable coin project as part of all unity which is a joint venture of galaxy uh DWS and flow traders. Uh so what we see is that when there is a pattern that there is a trusted traditional institution uh partner uh with the needed uh level of trust that he brings to the market by his brand name as to other products that he did in the traditional asset world. Uh that that's one thing that really make the difference from the trust perspective. Uh the second thing that we see that uh makes project successful is having a digital asset partner someone who already done um like digital assets project and has deep connections in the market uh and can bridge the gap between traditional assets to digital assets and that's where for example Galaxy come into play.

Uh so in this project for example uh we do um market making uh and distribution um and we have the knowow from regulation perspective how to make this project succeed uh and also we have the connections with foundations that willing to make uh investments in this tokenization project. So it kind of make them successfully in advance. And the second the third pillar is uh the technology partnership right uh to have partner that provide the custody and the tokenization perspective into the table. When it comes to uh tokenization um it makes things a little bit even more uh challenging because when it comes to provide just custody for crypto uh you just need to all the assets to have policy engine as to how the asset should be managed and protected and controlled by by the organization. But when it comes to tokenization you need different level of control.

You need to have smart contact level of policy for example who can mint how much anyone can mint and so on and so forth. Um yeah

yeah maybe in terms of product what I can add is that with the it's a year a little bit more than a year now that we are authorized and we have been able to implement uh certain type of product which are finally the same that exist already in the alternative investment fund uh world. uh it's just that those products are adapt to the crypto uh investment strategy. Uh so clearly we can do uh we are we have a strong background of what already exist and crypto asset strategy can can uh can can be really fit in this type of product alternative investment fund. Uh what we also working on working on it's uh D5 protocols because actually we see more and more fund promoters coming to us asking for a way to have a regulated regulated project investing in D5 protocols. So we are working hard with uh uh custodian regulated custodian to find a way to uh for those funds to invest in regulate in a in a in defi protocols in a regulated way ensuring a valuation oversight uh risk management uh aspect in place uh and so on.

So this is something that we soon ready to implement uh and we are pretty happy of that. I I want to spend we have about 10 minutes left and I I want to try to go deeper into the client use cases. Um, I think it's really interesting here and I know you guys might not be able to share everything, but I'd love maybe Andre, you to start off and talk in more detail around the use case you're seeing at ZKB in terms of um, what you're offering, where the traction is, where maybe the objections or challenges are with your clients or clients sitting on the sidelines still. um and any success factors to continue to help scale and grow into different products and services within this this this digital asset or crypto um operating model that you're that you're continuing to build on.

So the interesting thing is we are a universal bank. So we serve retail but also institutional clients. And the interesting thing there is a bit over a year ago when we launched our crypto trading and custody offering. It was mainly to stop the bleeding from outgoing payments towards crypto exchanges. So a lot of private clients who were already doing crypto and the goal was to get them back or at least to to get part of that back and that worked very well.

So the numbers exceeded our expectations even though I'm I cannot share them. And I think the thing that has changed in the past six months which has been very interesting to see is on the institutional side. So we serve very traditional conservative client on that side. So pension funds also other institutions and the thing there is until like six months ago that was not a topic and suddenly when we talk about multi-asset strategies now Bitcoin is a part of that so it used to be private equity commodities real estate whatever and now suddenly it's Bitcoin and we actually have clients who demand that Bitcoin is part of their multi-asset portfolios that they have with us. So I think a really strong shift happened and I'm sure the American um wealth managers who now say 2% of your allocation should be in Bitcoin that was a driver but so I'm very bullish on that also when I talk to other asset manager in Switzerland next 12 to 24 months crypto will really become a standard in multi-asset portfolios.

Yeah, maybe I can just add that we had a lot of business cases in the last few years. But for this year 2025 the biggest trend that we identified it was for example the what we call the bitcoin treasury companies uh strategies similar to the one that strategy is doing in the US and it's a trend that is coming in Europe with companies just like capital B H100 I can quote a lot of companies like that and they are looking for partners uh they need to they are listed companies so they need to discuss with the regulator for the local local regulators so they're looking for regulated custodians uh that already identified by these regulators and you know as uh we just mentioned before claims they want to invest in bitcoin because when we are talking about crypto I would say 70% and 80% of the investments is are bitcoin but they don't know how they don't want to have their private key on their own because they they are afraid to lose it so are trying to find solutions so there are a lot of solutions for that you know funds ETPs or spot through an exchange but now there is a new way they are you know the big country companies that are listed and you just buy a stock basically and you have a you have bitcoin indirectly with intermedia of this company so it's a biggest trend that we identified in 2015 on maybe I think that's a great point you pointed out the products are out there now the question is who uses them right and I think what we are seeing now is we see the momentum towards the tipping point where crypto assets in traditional asset management will become mainstream. Yeah, just quickly from the infrastructure perspective in order to support these guys to bring their uh uh products to the market. Um so we we don't need um to be regulated by ourself as technology providers right uh but uh the traditional institutions getting into the game they do need um and there are different requests um of Mika Dora right Buffin depends uh when you want to operate uh and our our mission in this uh um partnerships all the [snorts] time is providing the product that will enable them to meet the requirements right so uh the ability to do segre regation of assets between uh the institution assets to its clients assets. Uh the ability to do uh AML capabilities, right?

So according to compliance, you could freeze or unfreeze assets um and also different level of controls and pentest and audits on the code so uh they can meet the requirements really make uh the product successful and um getting into production according to regulation. Yeah, I agree with Leo on the on the part of the partnership. We see that we are more and and to make this adoption growing, we need to be more than a service provider at least on the on the fund management part and administration part. We need really to partner with the fund promoter and to accompany them in this in this journey to make sure that uh the product itself is operational. Maybe in terms of traction and type of investment investment strategy we see deployed.

We see uh two main different uh investment strategy. The first one is uh is uh high frequency trading with a with a liquid token in portfolio and on the other side more VC strategy uh with uh with uh for instance uh early stage token shares of crypto business web 3 and blockchain business in in portfolio. Do you guys think there's anything else that could maybe further accelerate the process of adoption with maybe some of the traditional clients you have that are sitting on the sideline? Um, you know, could it be, I don't know, bigger budgets, marketing budgets? Could it be regulation?

Um, could it be better pricing in terms of fee models you offer? Uh, could it be, yeah, just a lack of understanding? Is there anything you think that the industry is really missing today to kind of pull vault it into that next stage or do you really think it's just a time game?

Can start on this one. Yeah, it's a bit of everything you mentioned. I think uh there's for sure I would say an interoperability between all the regulations to make sure that they can work uh with each other. Meaning like if you take the FMD uh the our framework or Mika or MIT for instance there are a lot of relationship which is each other. So it uh we need some more uh regulation guidance on it uh to make things work with each other.

The other points would be uh yeah for sure education but I would say education along the chain not for the investor uh institutional investor but or institutional promoters but also for deposiitories uh custodians auditors everybody needs to speak the same language uh from an operational standpoint from a regulatory compliance standpoint and maybe the last part would be the budget indeed because in our case uh the The solution might be seen costly at the beginning but it has to be put in balance and seen um with all the opportunities that it can represent notably in term of distribution uh using the passport of the ifm European passport in terms of distribution allow more opportunities uh so extend the distribution and extend the fundraising capabilities of the von promoter and uh it also uh allow to attract I think more capital, bigger tickets from investor because when you invest in an alternative investment fund that is supervised by the by an IFM, you are ensure that you have the appropriate regulatory framework in place and we have seen that uh we have seen it for for for some fund that we have under management. they will not have been able to attract those investor those type of institutional professional investor if they haven't the the the the regulatory uh scope in place

and what about yeah the rest of the group can we graduate from kindergarten to the next class year uh with some acceleration tactics here

so I've been at that intersection of thread and D5 for quite some years now and I've never been more bullish about what's happening I think we have the momentum in Europe and in the US and the only thing I would wish for would be less noise, more education because the crypto industry is very very loud but it's not always positive or with substance behind it and I think if we want to mature as an industry that's what we should focus on. I yeah I couldn't agree more. I think the education is really a mandatory thing. uh and I would like to look at the question from the other way around uh not necessarily from what would accelerate but from what would uh might might stop it right and I think that what would uh slow it down is uh if one of the major banks will be hacked at some point and if we look at the shorter term um I think the most uh commonly use case is tokenization and uh I was talking before about the importance of private key security in uh crypto custody in general uh but when it comes to tokenization the risk is just the same, right? Uh in tokenization, the single point of failure that makes blockchain centralized is the admin key.

Any tokenization project has its own admin key, which is the one that can do minting, burning, updating the allow list, freeze assets uh and so on. And uh if uh in the shorter term the education will not be accordingly and banks will not utilize the needed uh private keys level of security technology that is needed then this admit key could be compromised and it could make a very painful conclusions. We already see today in tokenization that the source of truth is onchain, right? There are some projects that can receive uh uh stable coins as a collateral to loans over decentralized exchanges or uh some defy protocols uh and stable coins projects and money market funds project are uh getting traction uh such as a beel of black walk and uh Benji of Franklin Templeton and they are already received uh as onchain um collateral for loans. So this is definitely something that should be solved uh as it can really slow down the market.

Yeah. And just quickly in terms of success I think we just need to have a look at what's happening in the US on this part uh the day they decided to launch IBIT ETF for example all the US investors they decide to buy the I bit and they b to the intermediary of the shash web account or interactive brokers and they invest in the persian fund not directly in bitcoin because they don't want to invest in a in an asset that they don't know how to control it or anything they delegate the management to an institual player and that's the way they do it and I think we have the recipe in Europe we just need to develop similar products and uh people will not probably buy directly Bitcoin or Ethereum or whatever. They will invest in a product that they understand that they used to and it will go through in of institutional players that will be able to manage the risk in terms of custody risk of hackers that you mentioned before and I think it's probably the recipe to follow in the coming years.

I'm sure we could talk about this all day, but I think we're out of time. So, um, but it does sound like from all the years I've been on the panels and in the industry, it sounds like this is one of the first times I'm feeling quite extreme positive sentiment in where the industry is. And hearing from the asset managers on the panel and of course um, GKE as well, hearing that actually the the use cases at these these um these sellside organizations are there and they don't actually have to justify this as much anymore to the market to their management. um a huge huge advancement and over the last few years. I have not seen that um up until probably the last six to 12 months.

And just for me, that's that's the ultimate takeaway here that that mindset and that shift um at that decision maker level to actually instill change in the market is actually happening right now before our eyes. So with that, I'll leave you guys. Thank you very much for having us.