EBC22 | Fireside chat: Zero to Crypto

[Applause] the stage is yours [Applause] good morning david and uh good morning everyone it is a pleasure to be here today um my name is hannah santillan and i'm the head of sales for fire blogs in switzerland and also in the south of europe and we have um here today david nunes that is the head of sdx that is the six digital exchange um and we're going to be um talking today about how uh six and sdx um join the world of digital assets uh and are launching their business and the first the uh i guess that the first questions that is interesting for the audience is to discuss um what is sdx what is your vision for the company uh that you're building well thank you very much and a pleasure to be here so what is sdx so stx is part of six group which is the infrastructure provider for switzerland so in 2018 uh six which is owned by a large number about 140 banks in switzerland uh made the kind of rather a rather ambitious step of deciding that dlt was a and blockchain were technologies that could basically underpin and revolutionize the capital markets and if they were to uh to look at what the world might look like in 10 years time you know could they conceive of a of a stock market and a uh that was ultimately based on this technology so they embarked upon that project in 2018 and in 2021 uh sdx got its license to operate a uh a fully regulated financial markets infrastructure an exchange and a central securities depository uh built upon blockchain technology which in our case was the r3 corder permission ledger one question that i think is interesting for many on the on the audience we have seen many exchanges um how does having an fmi license make sdh different so i think it's a real exchange as in actually has a license to operate in exchange uh and that in exchange from the perspective of what it means from the traditional uh sort of context which is all the governance structures the controls the transparency the reporting and so on capital adequacy that all the um the entire framework that a as a as a consumer that particular service you expect with a regulated piece of market infrastructure so it differs from a crypto exchange in that most crypto exchanges don't actually have exchange licenses they have licenses associated with means of payments and so on uh it also differs from a crypto exchange in that we do not trade cryptocurrencies we uh we we list and trade digital securities and those securities because we are swiss-based and the uh regulation in switzerland is pretty clear around this are legally identical to securities in the traditional sense talking aside from just traditional securities that is a very important component but i know you have plans and we've been discussing a little bit about web3 and your plans for enabling companies that are venturing into the metaverse from an institutional perspective um would be great if you can tell us a little bit about your plans in the space our plans in the metaverse so yes uh so the sdx fmi initiative or that sort of pillar of our strategy is only one of three pillars and the second one is uh is essentially what do we as a financial market infrastructure provider in switzerland where do we think that the market expects us to participate and provide services uh in this sort of digital markets infrastructure of the future so yes providing dlt-based solutions on the fmi side is one is one very obvious sort of area that we should be participating in and providing services but the other area is is from the perspective of public chains uh and sort of underpinnings of web three what foundational services should we be offering in that particular space so last week we uh we announced the launch of sdx web 3 services uh which the first iterations of that are going to be custody as a service and then and non-custodial staking so we feel that helping secure public chains uh and providing sort of providing validator nodes providing staking nodes for the for the marketplace is a good place is a good is an appropriate place for an infrastructure provider like six to be participating given its long history of providing infrastructure in capital markets excellent um talking about the foundation technology that is important uh for institutions coming into the space another main pillar is uh is digital money um that will be i guess central bank issue digital currency at some point but in the meantime uh we will be dealing and we are dealing already with privately issued stable coins um and i believe you do have an interesting and quite a unique stable coin project as well so we have well on the digital security side of things to enable the uh the instantaneous settlement of the securities transactions because one of the one of the the unique selling points of the of sdx as a as a digital security exchange is that uh and it differentiates it from the traditional exchanges that we achieve atomic settlement uh through the ledger technology that we employ that requires that we have stablecoin issued on ledger so we don't call it a stablecoin it's not it's not a civil coin as people traditionally perceive things like usdc or tether to be it's um it's considered by the imf to be a a virtual or a synthetic cbdc so we issue uh tokenized swiss and shortly tokenized euros to our members when they deposit uh swiss francs or euros with us and we then hold that reserve one to one central bank the smv uh so we've conducted a number of experiments with the smb and the ba and the the bis innovation hub around cbdc's and leveraging the sdx technology in that particular use case to um to cover a number of sort of settlement scenarios around digital around digital security settlement and payments and also in conjunction with the bank of france some cross-border cbdc experiments but what this what the experiments all together uh illustrated was that um with the participation of the banks that were involved we've shown that legally and operationally and from technology perspective uh we can actually um cover all these various scenarios off and integrated back to the uh that the core banking systems of the banks were involved in the projects that we can actually achieve this sort of cbdc driven uh driven dlt supported um uh digital security settlement context and so we are now one step away from actually issuing a cbdc in and in switzerland is simply a policy decision by the smb to make at this point in time but i think that we have a we have i think quite an an interesting sort of vision at sdx of where the whole sdx and stable coins and cbdc's all fit together so i don't i don't consider retail cdbc's to be um particularly interesting i think there's a lot of uh con there's a lot of issues around a retail cbdc both from the perspective of the sort of surveillance aspects of things that that individuals get concerned around as well as sort of more broader impact on things like fractional banking and the way that uh that money generation actually occurs within uh within society today and monetary policy is executed uh but i do think that so i think there's a part that stable coins can play in that sort of innovative uh retail sector but underpinning those uh is this whole whole requirement around transparency of reserves and the ability for the stablecoin issuer to easily be able to liquidate those reserves and it feels very natural that if you can achieve uh atomic instantaneous settlement of your security executions then what you have there is a and you can settle that in a riskless fashion with a cbdc you could build a foundation for the whole of the defy marketplace that starts with cbdcs enabling stablecoin issuers to easily liquidate their um their assets and achieve and and therefore provide the sort of operational robustness and uh and and agility when it comes to um enabling the the liquidation of the stable coin to the uh to to users who actually who are using that stable coin in the first place when they want to get back into fiat and that then means that underpinning the whole the d5 infrastructure you have stable coins which are which is stable transparent um and sort of fit for purpose which at the moment we've seen that certainly there's question marks around some stable coins and clearly there are others that have illustrated in a sort of 45 billion dollar value destruction that they were not fit for purpose it is very interesting to hear a large regulated well-capitalized financial institution looking to provide this solidity and good foundation into the the diva ecosystem i think in the last couple of days we've had a lot of conversations about regulation coming into defy and potentially killing the innovation but this is a completely different approach it's about providing robustness and solidity for the business to be able to to keep innovating yeah i think the the the way that d5 can ultimately thrive and and things like and get adopted for instance by institutions is to address these areas of uh uh that are kind of currently sort of fragile and all the issues that we've seen within um over the last uh you know a few weeks in terms of the sort of the crypto meltdown have all been ones that look sort of uh disturbingly familiar around sort of over leveraged counterparty of sort of the obscurity of the obfuscation of counterparty risk um people not conducting enough due diligence there not be enough transparency that's exactly the same issues that we encountered in 2008 and 2001 and they're not defy issues they're they're actually they're actually cepha issues but that really illustrated the fact that within d5 there is these very significant touchdown points where it touches the world of cfi and and for the foreseeable future that will continue to be the case as stable coins being one of the most obvious sort of aspects of that we mentioned um an important point that is the current market volatility the the market meltdown that you uh that you mentioned are you seeing um a change of faith uh of pace uh in the institutional projects institutional adoption slowdown what is your take so far it's been a just a few weeks months but it's only been a few weeks i think the the least interesting thing about about web 3 and about around d5 and about and blockchain is the valuation of cryptocurrencies i think that's a massive distraction for the most part uh and and also i think that it's it kind of feeds uh a narrative around sort of ponzi schemes and it's at scale which i think is deeply unhelpful when it comes to the the long-term adoption of the technology i think that there are institutions who uh recognize that is also the case and therefore what's happening right now is uh is a is a cyclical healthy uh evolution of an innovate of an innovative technology space and just part of the adoption curve so uh if you are if you're thoughtful about things then you'll see this as being expected on the one hand and desirable on the other um undesirable in terms of the you know the the one and a half billion dollars worth of trillion dollars worth of wealth destruction that we've seen um but i'd also point out that that's that there's been uh you know orders of magnitude more wealth destruction in the traditional financial space in the capital markets and that has been in um in uh in crypto um but no i don't think that there's going to be a a huge slowdown of initiatives in this particular area because it really wasn't about the um about the valuation that uh that organization's institutions are getting involved for the most part there are certainly going to be some which jumped on the bandwagon because they're like well because of a fomo approach to the whole thing um but organizations such as uh such as six have always been in it for the long run and with the expectation of the the promise that this is the capital markets infrastructure of the future in terms of um the most interesting areas where you're engaging at the moment with financial institutions what are the areas that you would like to see financial institutions in the in the audience reaching out and and connecting with sdx on well i think that the the on the one hand we have the uh the live fmi we've done issuances we've done so trading and settlement so it's so so we're not a proven concept we're actually actually a live venue so um we're about to conduct a couple more significant issuances and new products um that i that i can talk a little bit about in terms of the the fqx short-term debt issuance which we expect to have the first one going um being issued next month uh which um which isn't it which is the product that doesn't exist in the traditional exchange today so looking for um for issuers who want to who want to issue securities on the platform and looking for new members who are looking to participate on the platform take advantage of the atomic settlement functionality that we have and the new and uh and also enable their investors to access uh the new products and services that uh that we're that we're listing on the on the platform that's on the fmi side and then on the on the web 3 services side it's well the uh if anything was that's been taught us for the last three weeks it's the whole you you want to be very careful about who your service providers are in this particular space so um so having a a custody provider such as a as sdx um or a crypto staking provider like sdx is is going to be critical in terms of ensuring that you conduct appropriate due diligence and your expectations around institutional grade technology and service provision is met is there any particular asset class that you think is going to be leading the way in terms of tokenized securities uh is it leading the way i think there's ones that lend themselves more appropriately to tokenize to tokenization than others or tokenization and other functionality that can be provided within the blockchain technology so it's not enough just to they think that tokenizing something doesn't magically make it better uh it's uh but but tokenizing something that requires um sort of provenance information to be sort of to be streamed into it such as uh uh real estate or um or art that sort of makes an awful lot of sense in context so we're looking very uh sort of very um uh we're spending a significant amount of energy on on private markets uh and have and there'll be um announcements in that particular area very very very shortly it's amazingly shortly um that i think that it's kind of paves the way for us as sixth group to be able to provide the ability for firms to raise capital at very different stages of their evolution so historically it's been get yourself to ipo readiness and then we can provide you with that with the ability to raise capital um and then have price formation achieved through the exchange the uh we where fdx think that the technology lends itself to um to private markets and other ways to raise capital to the short-term debt issuance uh uh product from fqx which means that at a much earlier stage in the life cycle of an organization we as six group can provide that ability for them to raise to raise capital it sounds very interesting and certainly we'll be keeping an eye on that imminent uh product launch um i guess we have just a couple of minutes left left and it will be interesting to to hear lessons learned uh as you've been going in this journey from 2019 all the way to today and certainly uh suffering all this market volatility um any lessons that you would like to share with the people in the audience the digital assets and digital securities is a get rich slow scheme um rather than cryptocurrencies which is obviously a get rich quick scheme uh so so that's uh so we've had to have a lot of uh of a lot so we're very grateful um to the support of our member banks uh that have been critical in terms of uh getting us to where we are today so their support has been vital so having having that sort of the clarity of mission in terms of building out the financial markets infrastructure of the future on this on dlt technology and then having the support of our of our banks to actually do that was vital but also working hand in glove with the other critical market participants within switzerland which is the regulators on the one hand and policymakers like the smb on the other have been also really really vital so so instead of um sort of doing the sort of a move fast and break things uh approach of a sort of a facebook or um or see what we can get away with and pay fines later that was never going to be the approach of a of six we're always going to start with okay how do we how do we consider that the um you know what license with licenses we're going to try and acquire and what are going to be the concerns of the regulators and preempt those concerns as we went into those discussions and then have a very sort of very i think a very effective and constructive dialogue with finba which ultimately led to the uh to the issuance of the license to operate so i think that was critical and then the support of the smb in terms of helping drive forward the whole agenda of the of the wholesale cbdc project is absolutely critical too as well as has been the the bis innovation hub so it's that whole ecosystem and that cooperation that i think has led to us that led to where we are today it certainly wasn't us just sort of going alone and trying it out it was it's been a a huge effort because that is a genuine ecosystem and one that requires genuine cooperation to actually adopt we're getting to the end of the time so we'll just like to thank david for your time today really interesting conversation and thank you everyone it's been a pleasure to be here in barcelona