Building Infrastructure for Institutional Crypto Adoption | European Blockchain Convention 2023

foreign [Music] testing testing hello um so welcome everybody my name is Madeline Boyce I'm the head of community of GBC digital Finance it's my absolute pleasure to be back at the European blockchain convention today today we're going to be discussing building infrastructure for institutional crypto adoption in looking at what that infrastructure really is and as well discussing the challenges that arise when trying to build and scale that infrastructure before we kick start the discussion I would love for my panelists to introduce themselves please if you wouldn't mind hello everyone I'm Vincent in the last time CTO of Geico Geico is a company that was founded in 2014 we provide Market data for digital assets to financial institutions and our mission is to bridge the traditional and decentralized finance by providing reliable data from all markets and on all networks and we do that by providing a range of products that you know comprise Market data analytics indices and research that power the investment decisions of our clients I'm David Engel I'm head of Business Development for starkware starkware is a layer 2 scaling solution we have two platforms we have Stark net which is our public blockchain um touring complete Layer Two which means that it settles on to ethereum we can get into that if we want to and then we have Stark X which is a layer two SAS scaling solution so that means that we provide a set of apis to exchanges and Banks and nft marketplaces customers include customers include DUI DX so rare immutable we've done about 800 billion dollars in volume settle on ethereum and anybody that wants to set up a self-custodial digital asset exchange that settles onto ethereum but it's basically a permissioned app chain would build on starkx hi everyone um my name is Rajiv sainani I'm a contributor at maker Dao I'm always careful to say contributor because there's no such thing as an employee at Dows the Dow governs the maker protocol which is one of the oldest and largest D5 protocols um it's a lending protocol that's also behind die the largest decentralized stable coin um there's about five billion dollars of die in issuance and it's backed by Multicultural types including um crypto collateral primarily ethereum and ethereum derivatives centralized stable coins which are very important component to to maintain the diet Peg and more and more so what we're seeing um the the usage of real world assets which is driving the increase in parts of our revenues hi guys sorry I'm late it was too interesting upstairs um that's all right my name is glep I'm the CEO of the white pay we do the crypto Solutions and the crypto processing for the business for the merchants all over the world offline and online we started two years ago in Ukraine in harkif and right now we are presented uh in the five regions in the world and developing our infrastructure great thank you all for introducing ourselves I'm really pleased to be here and I think we've got a fantastic panel because you're all able to speak to different components of the the topic of today's panel so David would you mind if I kick start the discussion with you uh and ask your perspective and what are the key infrastructure components that are needed to build and still scale the institutional adoption of crypto I I think there's a couple kind of high level components like you need regulatory Clarity um obviously you need um you know the infrastructure I think from a technical perspective um you need wallets you need protocols to actually exchange the assets you need order books on chain off chain order books on top of those um and then obviously you need the liquidity to fill those and I think within this panel we've got a range of different you know protocols data analytics providers liquidity providers that kind of make up the overall uh landscape for the infrastructure absolutely and I guess in terms of what we need um I would highlight two things that sort of we've really experienced as as pain points I one is legal Frameworks and structures especially to bridge between on chain and off chain like when you want to bring D5 together with traditional institutions it's amazing how much legal work is required when you build that that bridge and the other is actually efficient on and off ramps um especially as you get into higher values it's amazing how much friction there is in that process and how expensive it can become so yeah those are probably two that I would highlight and if I saw anything there either yeah I mean I I can Echo the comments about the the uh the ability to uh transfer assets off chain between different chains which uh is uh is clearly key component and more generally more generally the composability of of defy and making sure we have a different components of the ecosystem can interact with each other uh in a seamless way to uh you know to to provide institutional institutions uh with I would say a similar seamless experience uh in indefine yeah very much so thank you um well we've said that you know the panelists can speak to different components about interacting with institutions and building and scaling in that sense glib could I ask you to maybe elaborate on some of the recent use cases you have of those very interactions yeah thank you for the question [Music] um we recently like from the beginning of the war in Ukraine uh was lucky and um well prepared to build the case for the Ukrainian government uh so we implemented the crypto processing to the president's lensky website U24 uh in like one week probably or so and collect more than 12 million in in crypto for this funding and transfer it so this is the it was happening instantly uh beginning of the war nobody thought about the regulations legal stuff just do it please help us government asks and on that case we understand that when you when the government needs something like really bad you want to talk to them you want to help them uh you can do it from the private part of the company you can integrate on all of the services if they really need to so right now we're building the similar crypto projects with a few governments in the European Union and we develop our cooperation with the Ukrainian government as well uh building the projects that are related to the state services that can be paid by crypto in the future so I guess this is the the only one use case in the world when the crypto company works with the government straightly and all on the different levels be really valuable for the audience to hear from all of your other use cases as an example so Rajiv can I just maybe ask you to follow on yeah it's actually great to see on the panel so many different use cases of crypto and just how it impacts in so many different areas um from maker I'll focus a little more on the use cases or the institutional use cases we've seen with real world assets um I'd highlight everything is experimentational I mean we really are just at the beginning of this journey and from from acre it's probably a journey that's two years old you know the route sort of started very much in the crypto space but with real world assets when there has been a lot of focus um I guess it's sort of the three distinct waves that I would call out in terms of use cases and the first really started perhaps a few years ago where the institutions we saw were young pioneers and we actually internally call them sort of the pioneer vaults where we worked with young Innovative companies a great example is centrifuge who's a decentralized financing protocol for real world assets where maker was able to participate as a senior lender in various lending pools that are based based on die and in turn that funding becomes available to institutional asset Originators who are specialists in particular segments so the use cases of providing Finance for things like trade Finance real estate Bridge loans and and those were sort of the first early experiments that formed a little bit of our learning last year we saw another wave and it was really interesting to start seeing regulated Financial entities start to express curiosity and the desire to experiment with D5 and again it's it's sort of small value experimentation but but we had two very different use cases one with the U.S Commercial Bank and one with a a French regulated entity and not to spoil too much detail there because we've been talking about that tomorrow together in a panel call when D5 meets stratify um loads of learnings from from both experiences and what we did learn is this stuff is not easy it takes loads of time to build these Bridges and to get regulated entities comfortable with the Paradigm and the constructs of working with the D5 protocol but the learnings we took were you can do it as I mentioned earlier it was amazing how much work was required on the legal front and that's probably where most effort was was put in and and it was actually very different in both use cases so you know the regulatory environment in the US very different to to France and we had to cater to both so so that was the second wave and then the third wave which I think is sort of what we're seeing now it's actually a bit of an inverse of what we've seen for many years of capital flows from tradpoint to defy as a D5 protocol we recently announced that we made an investment in a very traditional transfer instrument a U.S treasury ETF and again the learning is it's not easy to actually deploy capital from you know an on-chain protocol into the soft chain world but um we figured out early structures that have allowed us to do so and and I think a lot of our Focus this year will actually be um on similar Investments especially with with money market funds and I think what's missing actually in the industry you know we're having to build Bridges but as the industry starts to build more products natively on chain that's when you start to see sort of the real scalability happen so um so mine's actually a story about the easiest Business Development I've ever done I'm like the work that you're doing which is really kind of very very intense long um you know pretty complicated efforts so about three months ago I went into work and we had an email from Visa saying that we have built a uh product we've built a proof of concept on starknet using account abstraction would you guys like to hear about it um which is for anybody that's ever sold into any Financial Service institution is absolutely unheard of to actually hear about the project after it's already done um so what visa did was they took um basically a solution called account abstraction uh which is on which you can do on Stark net a very simple concept is it's like a smart wallet so if you think about a wallet on ethereum it's let's call it a dumb wallet so you can point from A to B and you can only do push payments so I say I want to send money to Madeline and I push the money's Madeleine and that's all you can do what account abstraction does is it turns a dumb wallet into a smart wallet so it's basically a fully programmable wallet and what visa did was they built a very simple POC to be able to do recurring payments so if you think about what a subscription is where I go I agree that uh I subscribe to a online magazine and every month they're just going to pull money from me well you can't actually do that using an ethereum wallet so even if you want to build on ethereum and you want to build some sort of advanced wallet functionality it simply doesn't allow you to do that and Visa recognized that this that wallet infrastructure and building kind of more web 2 like wallets is actually one of the most important things to be able to unramp people into crypto and into you know the Visa or the ethereum ecosystem yeah until they went ahead and had and built it and then told us about it afterwards and I think that um you know now it's it's pretty well known and I think that you know there's a lot of opportunities from it but I think that what we are seeing is that that you actually now have Enterprises that are actually taking uh taking the initiative themselves um which you can do with permissionless blockchain you can go and you can build whatever you want and I think what we're seeing especially with account abstraction um and making it easier for people to do things like key recovery um removing the need for seed phrases being able to do face ID to log into your wallet are all really important Innovations both in terms of actually onboarding the next billion users but also in giving Enterprises or institutions the tools to actually deliver user experiences um that previously were simply not available thank you David um on our side at Keiko we we work a lot with financial institutions um covering the buy side but also the the sales side and on you know on both sides uh it ranges from you know supporting them creating uh investable products um you know by providing uh Benchmark rate so that asset managers can create uh mutual funds they can create ETFs etps they can create Structured Products whatever derivatives has a you know a digital asset as an underlying so with uh with our benchmarks with our prices we enable uh you know that adoption by uh by the uh by the by side um obviously we support them in the whole investment life cycle starting from free trade you know analysis of of the assets assessment of the risk of implied volatility to post trade uh you know uh strategy back testing all the way to Middle office um you know controlling the risk calculating the value at risk and providing official you know numbers to calculate the performances so we we basically Empower them uh throughout the whole life cycle we also work with banks in you know tokenization projects uh of uh you know real assets we act uh as a as an oracle to extract Market data from traditional finance and bring it into the blockchain to allow the execution of a smart contract for those tokenized assets and we also work with Regulators because obviously Regulators will need reliable data to uh you know for Market surveillance surveillance um and we provide not only the raw data that we collect but also uh contextualized data uh that allows to uh explain uh you know what's happening on the market well thank you all for sharing your use cases and insights that really showcase the potential but also the challenges that arise when interacting with institutions Rajiv I don't want to spoil the fun for tomorrow but if you wouldn't mind elaborating a little bit on the challenges that arise when bridging Trad fire and web 3 infrastructure I think that would be really helpful for the audience moving on I think one of the big ones and I think actually this is a bit of a responsibility we have as an industry is there's a real lack of understanding of you know the on-chain paradigms when you move into the large institutions so so you've got the Innovative digital asset arms who actually very keen to experiment and and work with the industry and you know get Innovative but but it's when you go Downstream in these institutions into the the legal departments the compliance departments that there's sort of huge pushback and and um that's where actually a lot of a lot of the work is required to help the institutions go on a journey to understand the potential of this new new technology so so that that's certainly a challenge I I think another one is unfortunately that there's a bit of a perhaps a trust issue right now in the industry um considering all the recent events and you know like as much as I think people are beginning to trust that technology perhaps there is a bit of a lack of trust in in the existing players and um I think that's just going to get better over time I think it's it's actually some of the recent events are going to force a clearer regulatory environment and that is another challenge you know everybody wants to play by very clear rules but it's not so clear what those rules are so I I you know the tech is the tech has always been the easy bit and and especially when you get two good Tech teams on both sides from you know from trying to fight D5 working together that's easy that the challenges I think are sort of more around the the acceptance of of what we want to do and I think you know to me it's become very clear everything we're doing at this stage it it is experimental in nature it's proof of concept the scaling of this on a large scale it's going to take some time I think one other thing is that the business model of the business model of building a kind of a solution targeting institutional Finance for blockchain is very challenging very challenging the volumes are small relative to centralized or decentralized exchanges um I mean I just as an example we do about a billion dollars in volume a day through our derivative exchange customers we've done up to 17 billion in a day the volumes that institutional Finance is doing is very very small I mean like I think um you know JP Morgan has been public with their Quorum uh there's Quorum solution they're doing about a billion dollars a day in volume the repo Market is tens of trillions of dollars so it's um you know there's all the regulatory challenges there's all the legal challenges and things like that it's also really interesting to try to build like a an actual real business case around actually selling to institutional finance and I think it'll get better like we're already seeing it get better we're seeing more volumes we're seeing companies being I guess more bold in terms of putting more liquidity on the blockchain but I think overall um you're probably going to see a lot of businesses kind of try and fail just because the business model doesn't yet Stack Up that makes a lot of sense and clear but I was wondering if you might be able to share your experience interacting with governments I know that's a little bit different um that's what we've been talking about in terms of bridging Trad fire and web 3 but if you have any particular insights from um yeah your your work with a government that would be great to hear yeah I actually wanted to start with the web 3 because I got one situation a few months ago was attending the conference in the Copenhagen and um we have the same panel and the moderator asked me uh how you will modify your project to the web 3 and how are you gonna enter this era of of this internet I was thinking about for like two minutes and then realized that I like already done it's like before the hype so we we provide in uh crypto solutions to the merchants they can accept crypto they can be in the crypto or withdraw the funds to bank accounts if they need to and the users can pay with their crypto not with the banks not with any centralized institution just with their own money to the merchants to keep their own money and I'm like huh so I already done it kinda I don't have web3 in any of the marketing materials and stuff like that maybe I should do that uh be up in the Google search or something like that but yeah it was kind of funny so we kind of already done it um the future is that the people gonna gonna pay with the crypto I think and building those bridges with the governments and with the retail is very important because nobody know how to text the crypto right nobody know uh how to ramp it from from crypto to the Fiat properly so your bank will not block it and stuff like that so nowadays what it can do with the crypto is just withdraw it to this through the some third-party service to your bank card and hope that it will not be blocked but we're trying to change that to let the people pay with the crypto and Consulting the government regarding how this were World Works where you should tax the people that the crypto investors can be two years like in the minus position for a couple of mail it doesn't say that you need to tax them for those money you should wait until they made some and then tax so we explaining to them the basic things how the world works like how you will explain it to to a child uh and it eventually will work so in in that manner in that tight cooperation with the with the institution with the governments with the big retail Merchants they got thousands of people in the management and the decision making in it you need to explain it to them like very very calm and polite that you can accept crypto in in your country it's okay you will not be sued for that as long as you pay taxes from the income it's all right and you do that service to them you taking the licenses you try to be regulated uh to bring that future of the payments to to our next Generations probably or our generation a quick point on that um because I saw with a lot of interest I spent many years living in Brazil and I mean huge economy very close but lovely if they recently announced the the ability for citizens to pay taxes in crypto which I thought was I mean it's just huge so I I yeah I think we are it's going to be baby steps but it's really encouraging to see an economy that big actually take a positive step forward I I don't know much details but yeah Big headline I thought yeah absolutely and I think a lot of what you're alluding to is about building trust but Rajiv you were talking about how institutional trust has been affected in the past year and I wondered if David you might be able to elaborate on how rather the the player narrative but rather building infrastructure in like solid and resilient infrastructure is going to be part of rebuilding that trust um the challenges that like institutional infrastructure is very good is very very strong I mean you know Swift network is sending you know trillions of dollars a day the interbank networks are good uh it's very easy for a bank to send to an international settlement Bank like so the the infrastructure is is incredibly robust and strong so we're placing that I think is is very challenging you got to find the reasons why um I think one one instance that I think we're going to start seeing a lot more of would be like in the FX markets or in B2B payments specifically where there is you know when I say FX I mean institutional FX I don't mean retail but where there is you know very large value of money very low retail risk instant settlement uh much lower cost um you know much much like much lower back office infrastructure required in fewer people if you're suddenly on blockchain it settles like that so I'm all of a sudden you don't need a couple hundred people validating and verifying compliance um so I think you we need to be very precise into terms of what are the areas that we think will be replaced and then if they're going to be replaced what's the upside and so I think where you see you know large flows of money uh between International Banks so sending from one country to another that makes a lot of sense for blockchain where you see um you know uh payments like Merchant payments between countries that also makes a lot of sense I mean if anybody has run a business and tried to you know buy a product in another country it's multi-day settlement um you know it's often there's the very expensive exchange cost so I think we're starting to see you know different pieces of infrastructure for that pop-up stable coins obviously uh you need you want a protocol that that you can trust you know preference preferably at a centralized one I think self-custody is going to become very important so the ability to you know for merchants to custody assets on their own but do it in a way that um really significantly reduces the risk of losing it like being able to self-custody in an ethereum wallet with the seed phrase is actually pretty shitty experience for for business owner but if you can do self-custody and they can have you know they can have faith that you know if they lose their hear their seed phrase that they can do a multi-sig and they can have you know four other trusted people whatever five sign for it then I think that will be replaced so um yeah I mean I think I think basically we will see pieces of of the infrastructure being replaced but it will be very selective and it will be slow and it will be where we see the highest value um accruing because it is on the blockchain yeah that makes a lot of sense and Rajiv maybe if you have anything to add on on that front since you led the segue into to the discussion um I think we're going to see a lot of new names run experiments and proof of Concepts in the crypto space um I think a lot of Institutions are building out teams that they're very early in their internal education and and I think that's gonna lead to the discovery of you know where are these areas where are these sweet spots that it makes most sense to embrace this this new tech and and I completely agree with what you said earlier building the business cases is one of the big challenges they have um I think Emerging Markets actually has a lot of opportunity because there's a lot of inefficiency and very badly served segments and financial markets over there which I think you know perhaps gives up a nicer starting point for for crypto perhaps if you know if um regulatory Frameworks allow that but yeah stable coins I think is another area I'm surprised we've not seen some of the big names announced anything but I you know I really saw and even from some of the conversations I have with institutions it's it's very clear they are they are gearing up to to make moves um in the in the segment and actually just in the last few days I've been reading about Acquisitions from Big names so I think I think we'll see a mix of Acquisitions and build and and that's going to drive a huge New Wave of new names in the space and tokenization is is the other big one I mean so much happening there so there's indeed um there is indeed I think when we're talking about the like the the biggest challenges as institutions move into that space and whether it's you know like from from Acquisitions or you know building out their teams I think conducting institutional Finance on a public blockchain um is probably one of the biggest stallers in terms of the effects of uh privacy and confidentiality and I was wondering if I saw you might be able to to share your thoughts on that a little bit Yeah and yeah there's a few challenges there's a there's an educational change first which is to um you know get institutions to understand that um you know the permissioning and privacy capabilities of a blockchain it is possible to deliver secure service on on blockchain but there's a lot of Education to be done uh you know with institution uh and um you know reminds me a little bit uh you know I've been 25 years in traditional finance and reminds me a little bit of uh you know the transition to public Cloud you know 15 years ago no bank would want to hear about the public Cloud you know it's insecure it's not reliable and and here we are exactly on the same path um hopefully you know in less than that no one will you know it will be like a done deal um but yes there's a lot of Education to be to be done now um you're mentioning the business model um there's a change of business model as well when you know today traditional institutions uh you know Market the infrastructure costs in their own service costs on the public blockchain it will be the end user paying gas fees uh so that's a little change as well they have to get used to um and you know speaking from my own perspective uh there's a big data transparency challenge uh where um you know institutions need to better understand and better control um you know uh what they're doing when they invest in crypto um and you know the last one and maybe I'll let David elaborate on that is more on the infrastructure you know reliability and scalability uh we need to uh we need to show secure infrastructure get stock to compliance show you know best practices in terms of security governance [Music] so that's quite a lot of work but but a good opportunity as well um actually I actually I'm slightly more bullish on institutions building on public blockchains um specifically ethereum uh we mostly institutions we talk to um are basically have moved away from permission blockchains um I think that they recognize they're not really decentralized they're not really that secure um we're seeing almost 2A to an institution the desire to build on ethereum but there's one really big problem that they that they can't yet overcome uh and that's the confidentiality of transactions so obviously a public blockchain is exactly what it sounds like it's public your transactions all appear on the public blockchain and you simply can't do that if you have counterparties that are trading you know hundreds of thousands millions uh billions of dollars um they don't want to be front run they don't want their transactions public like it makes perfect sense it's a commercial issue um so that's what the big issue that we're seeing um Stark X the pla our layer 2 SAS platform um as a happy coincidence solves that so we built something called validium.availability mode the reason that we built that was that it's very expensive to settle transactions on ethereum from a layer two so we built the ability to send the transactions off chain and then you have a availability committee that will basically send a signature on chain to sign for it we do that because it's cheaper it's simply just cheaper than putting the transactions on chain what we actually didn't even consider is that actually by sending the transactions off chain but having a proof that the transactions are on chain is your knowledge proof you're actually still getting the ethereum level security without actually revealing the transactions and so all of a sudden we started having these Banks reaching out to us and saying oh we hear about dot availability about your validity availability mode does that mean that we could actually build a digital asset exchange on Stark X we still get ethereum settlement so we still get you know layer One Security we get Layer Two scalability but the transactions actually stay confidential we're not revealing our customers uh information and it does that so I think that um now that we have an ability to actually remove the risk around confidentiality what I think we're going to see is a lot more um I think it's experimenting sure we're much more interested in production mode like in production workloads um but I think in the next few years we're actually going to see more production workloads where we're actually seeing you know multiple billions of dollars traded per day on the digital asset exchanges because they have the ability to still get you know ethereum security but can keep their transactions confidential we're built on ethereum and yeah I'm watching with so much interest The Innovation and that's coming from you know the likes of stock where because I mean that's the great thing about our industry is it's you we're so early so we're still learning where the issues lie and with each year you're seeing them being fixed so it's yeah watching with a lot of interest what you're all doing I mean I would agree that it's going to be it's it's going to end up being a mixture of the experimenting that you mentioned the production that you mentioned and also I think the attitude and mindset that Vasan brought up around how you know if you go back 15 years in the idea of conducting any kind of institutional Finance on the cloud was foreign and we're kind of at that same stalemate now I think that everything that's been brought up today is is like driving us towards us 15 years ahead where that's not going to be so much of an issue anymore hopefully and I suppose um for the sake of closing this panel on a positive note glib maybe um you could share your thoughts as to you know what you're looking forward to in 2023 and um like the institutional adoption of crypto and and what that means for your business uh I wanted to start off maybe with a do you remember Ripple when is the last time you checked out on them uh like a year ago two years ago but during that time that they realized how how the government and how the bank Works they turn off all the marketing we they opened like 15 offices around the world and start to work with the governments and with the banks straightly and right now their team Consulting visa on on the public blockchains they implemented their blockchain more than the 50 Banks I'm not promoting them but this is how it should work this bridge between crypto and traditional Finance you don't brag about that and you just do the work calmly because you you will need 10 15 years to do so and in this year and next year um I'm hoping that the institutions and the governments will open the doors for for the crypto companies and we will see some major changing in the crypto adoption in crypto regulations and in the big names of the big companies and banks in the space that will consolidate and work with the Greek crypto companies to improve their services that that's how I see it and I think we're all looking forward to it and so on that note I want to say thank you for your participation I've really enjoyed the conversation and yeah I'm looking forward to the rest of the conference thank you [Applause]