TOKEN2049 - Institutional Crypto Custody Solutions

after a fantastic first day we're going to be talking institutional custody here today I'm really pumped we do a lot in this pace to be honest this this topic has been coming for quite some time now people always ask when moon I think the real question needs to be when custody because that's really what's holding the space back according to a lot of institutional clients we have a starcast panel here now let them speak a little bit shortly about their companies and what they're really trying to do we have a whole lot of questions around institutional custody and I'm super pumped and excited to get started here just to kind of introduce everybody here Pascal will start with you now your company has been in this pace for quite some time most people know larger I personally own a ledger wallet myself tell us a little bit more about you know what you guys do and your new institutional product that you release sure so litter is a security company we're based out of Paris and we have now offices in Hong Kong and in New York and in San Francisco and we do security by bringing the the chip-and-pin technology to to this industry we well known for the Nano eyes product we saw 1.5 million units of the product in more than 165 countries I usually ask people to raise their hands if they own and anyways can you raise your hand if you know Nana's well thank you thank you very much I also do this in other type of conferences that are not crypto conferences and the result is not as good but so we still have work to do and at the heart of everything that we do there is an operating system and the good thing about this operating system is you can port it into different type of hardware this is why we brought two to the market the vault product which is our b2b enterprise products that allows self custodianship and we ported the operating system onto an HSM and we have a partnership with D'Amato to bring you know security for you know hedge funds financial institutions etc etc and the last thing that we announced with with regard to the vault product is we working on the on the joint venture with no more to bring a full licence custodian to the market excellent it's let's moving on Josh you you guys are a qualified custodian if I understand correctly you've got enterprise-grade insurance I know I've run into a lot of my institutional clients and so congratulations obviously on many fronts tell us a little bit more about bid go and kind of what you do in the institutional custody space sure and thanks by the way for everybody for for coming bright and early in the morning it's great to see everyone here it's helpful we're talking about custody but just a brief background about about bit co and how we got started we sort of been in the digital asset security space for the last six years we started out as one of the pioneers of multi-sig technology used to safely store and transact within digital assets and so many of the large institutions in the space who have their own applications on the back end are using Bickel non-custodial wallets to power and secure those those transactions so we've got a couple of hundred clients from some of the largest crypto exchanges to OTC desks payment processors lending solutions etc just give a sense on size across all of our wallets we're transacting roughly 15% of all Bitcoin on chain transactions and of course all of our tokens which now are over a hundred are supported tokens we're transacting over fifteen billion in notional per month so I spin our business and of course 2018 comes and we see this mass flow of institutional investor demand that's come in to space of course they look and they say hey what's missing here and one of the key things that's missing is custody they look at every other asset class they're used to seeing this role of a custodian which we'll talk about and so we just saw this as a natural progression of our business custody primarily is all about security and so we've sort of been trusted we had the technology already and so we just built on top the people and process and to your point we launched the qualify custodial solution through a state charter trust through South Dakota division of banking and that's picault Trust Company again in the US that's you know for a qualified custodial solution which I think we can also talk about I'm sure when you also mentioned we recently announced a hundred million dollars of secured insurance for cold storage through a insurance syndicate through the Lloyds marketplace next let's go to you Alex so I did not know this before Unchained custodian was one of the top 50 FinTech startups in China according to the KPMG report it's obviously a huge deal with KPMG is saying it tell us a little bit more Alex about you know kinda what you're doing especially how are you differentiating yourself in the asia-pacific market in the institutional custody space so on Shane on Shane was one of the top 50 indeed so I'm Chinese our mother company they launched in Singapore on Shane custodian which is a custodian service for I would qualify it as a boutique custodian at this stage because we don't have your size obviously but we aim at servicing asia-pacific high net worth family offices hedge funds and and VCS who are investing in crypto and don't want to to have the burden operationally and technologically to to operate I would say there are crypts of assets so we're launching actually next month so the platform has been is currently being finalized in by the on Shan team in Shanghai we reusing some of the ledger technology as well to support us with that and our our aim is ready to to offer more a service than just the technology we trust partners for the technology and we would evolve our technology with partners what we want to offer is more service a personalized service for investors who don't want to wait two weeks or to you in two days to get their phone call answered to so we are founded by Dawn Fay the founder of neo which is very nice in terms of having an access to a network of investors and customers in asia-pacific and we are funded by Sequoia Capital excellent are there specific regions in Asia Pacific where you're focusing an asia-pacific first and the Oliv Asia Pacific obviously we are based in Singapore so it's easy access to investor there but also China Hong Kong Korea Japan and we will be exploring well as Theon as a whole and we will be exploring Australia as well where we believe there is a demand excellent it's a good segue to you Henry when I spoke to you I did realize your family office needed a custody product and you guys just went ahead and built one yes that's fantastic I think that's that's a testament to the entrepreneurial spirit that defines the space tell us a little bit more about what you do and I also noticed you have a digital securities exchange that you launched recently so congratulations on that as well yes well across our greater group we've been involved in asset services and structuring for 35 years now looking after companies trusts funds family offices one of whom was our own about two years ago we ourselves are trying to purchase digital assets and we decided we couldn't because we couldn't find the sort of institutional infrastructure that we would expect for us as a regulated fund to access that space and we I guess we ended up building it ourselves and today fusong is 100% focused on on FinTech and specifically on building and providing financial infrastructure to Asian investors so that they can access the digital asset economy as we call it in a way that's secure convenience and compliance most importantly and we have two main areas of focus the first as you mentioned is as Asia's first fully licensed securities exchange focused on the public listing and trading of digital securities and assets but the second is I guess what we're here today to talk about which is custody and asset servicing and custody to me means the ability to hold and secure assets asset protection but I think also asset servicing is critical for anybody here involved in a traditional finance or institutional side in terms of all the ancillary services that go into looking after an asset whether that's from a tax perspective from a legal perspective compliance all the boring things that no one wants to talk about but unfortunately someone has to do so I think both of those are essential pillars to enable everyone in this room to build out the future of finance excellent you know you guys are obviously building amazing businesses and congratulations on that I want to get right to it I have lots of questions on custody but let's start with something basic what is custody and what's the big deal you know banks have been running safe deposit Locker so I kind of just put my key or whatever there what's what's the big deal here well like I said I'd to me the two side one is asset protection and one is why casa servicing and then again all of us I think who've worked in the traditional finance industry are very familiar with all of that I don't want to steal my colleagues Thunder in terms of how we look at protecting assets I think there's some amazing technological solutions out there and I'm sure many of my colleagues will talk about that and so maybe I just want to focus on the second half of asset servicing and I said you know to me the two halves technology and operations you know when you walk into JPMorgan and they say okay I can hold your your stock and that's it it's not very useful you really want them to be able to take care of all of your client needs as let's say a hedge fund you say I want to buy and sell equities I just want to pick up the phone make a trade and I want my custodian to just sort out all the other magic in the background and the honest truth is that I don't think end clients need to or should have to understand how all that magic works they should just be able to say look as an institutional investor I want to access this market again in a safe secure and compliant way I need to find a trusted partner who can take care of all of those many and very issues for me and the truth is those issues will evolve both in terms of the technology of how we secure assets but also in terms of the regulatory environment the tax environment is shifting every day right in different countries how things are treated you know leaving aside regulation just to give you one example of something we've been thinking a lot about we've got a working group that we set up with the University of Oxford to look at legal issues legal in the sense of what is the actual status of something like Bitcoin in a country like Hong Kong is Bitcoin property a lot of traditional common law lawyers will tell you as far as they can think they can make out Bitcoin is not property it cannot be owned it therefore cannot be stolen that was what happened in the Mongkok position and obviously these kind of issues as you can see pretty fundamental as a custodian right wait a minute if people can't steal my assets do people have a claim against me if I lose the assets things like that I think it's pretty critical for custodians to look at these issues so that investors don't have to ok so asset storage and asset servicing you want to add something pasco sure I mean on the security side I think so I think it's three things it's the basic security crypto is the easiest asset to steal at scale very easy to steal private key and then transfer the bitcoins it's very difficult to steal gold at scale go to steal yeah cash at scale to steal gold at scale you need an army and invade a country that's how you still go that scale otherwise it's almost impossible you need ease-of-use because all these protocols are very very new so the technology that brings security also needs to make it easy to use the protocols and with the multiplication of coins and a multiplication of protocols that are doing like you know from staking to lightning to the different type of things that the protocols enable you need to have technology that sort of enables that on top of security and finally it's it's about governance what's very difficult with with coins is that you only own the private key you on the coin the problem is if we all share the same private key we all in the same coins in it it becomes it becomes a problem if we run a hedge fund or if you run before several people that need to access the funds so you need to have a technology that enables security ease of use and governance I think these are the three important things so I'm gonna put you guys in this part a little bit here you know I heard asset servicing assets storage you talked about security and governance these are all attributes of the existing traditional financial system some of this seems to run contrary to to the idea or philosophies between Bitcoin or litecoin for that matter because custody or custodian models are almost creating a central point of failure arguably cause storage is it's lower transaction speeds harder to access and you know qualified custodians creates further let's say barriers that already exist in terms of expanding access to capital financial services etc how do you reconcile the two it almost seems to run contrary to the idea of decentralized cryptocurrency but maybe we'll start with you nourish I'll take that I guess a couple of thoughts first of all you know if you're if you want to hold your own digital assets you're entirely entitled to hold your own digital assets exactly as was intended you know you know by the innovation that we're all in right now in dealing with when you have a fiduciary obligation on behalf of other people when we talk about institutional investors that are entering the market it's not your money right you're managing someone else's money that's another question of trust and the framework that has been built over time has been built because while this is a new asset class market structure you know we've dealt with stories for years across multiple asset classes we know lots of stories of the Bernie Madoff of the world and everything else that can clearly happen when there aren't the appropriate safeguards in place and you know I'm not I'm not here to talk for you know more and increased regulation but I am saying that like we should all learn where as we as we you know as we get into this space and by the way you know we all watch the news we're all excited for the news when some you know any any indication that there's large and traditional institutional demand coming into this space because we know what it's going to do you know for the overall adoption so on the one hand we want it to come in on the other hand we obviously have to recognize that for that to come in there's just a different set of rules for you know for that for that segment yeah we got to that I fully agree that if you are a retail investor you know obviously you're not going to go after a custodian the third-party custodian to hold your assets you can do that on your own whether one of the devices you're selling and it's worked fine as long as you manage them properly but if you are an institutional investor even in the capital markets industry I mean an asset manager even is using multiple custodians by the way so that's also a best practice that we should be having in this industry you don't have you're talking about concentration of risk that's also manageable by using multiple custodians so I think there are good lessons as you mentioned to be learned from the traditional capital markets and how it operates and how this can be replicated in the blockchain and crypto industry but yeah there will be a need for different solutions for different types of holders and different types of investors and that's where we hear today and just to add on to that so as an example cash is decentralized in a way cash is peer-to-peer I can take out my wallet and my colleague from you know 100 bucks but most people still choose to keep their cash in a bank it's just easier and it's just safer okay so it's about creating a choice which clearly institutions are looking for based on what you're saying so let's dive into that a little bit I want to hear from each one of you can you speak to the actual institutional demand that you're seeing you know here does the price action and all that's great but what is the actual institutional demand I also asked this because 2018 as much as it was a bear market you know for the price the infrastructure and services market was fantastic you know we should know we have a crypto business which which did great as well I want us hear from you guys about all the major regions maybe you know if one of you can speak to North America start to start there and then we'll go to South America and work our way across what is the actual institutional demand you're at you're seeing we'll start with you Josh for North America perhaps yeah sure you know we're seeing a lot of demand obviously from you know a lot of the the what we'll call the crypto funds right so you have a lot of crypto funds who you know either right now or coming close the larger ones are coming close to this you know vague right now issue in terms of the adviser Act of 1940 and sort of like you know okay are they required to have a qualified custodian if they're an SCC registered investment adviser what does that make them have to you know in order to to comply with the regulations because I make them have to move towards and so we're seeing a lot of those funds come in we're seeing a lot of traditional the first movements from traditional asset managers that are looking to get into this space as well you know and again there's they're starting sometimes they start with the fund themselves with a small pot sometimes they're starting with a family office of some of the some of the people who run the fund and that's been another interesting angle on this of course we've seen a lot of the traditional bank we've been talking for years with a lot of the traditional banks and custodians we've been wanting to get into this space and by the way from from dick O's perspective okay said before we started offering non-custodial hot wallets we offer obviously our customers a custody solution we also offer what we call our self-managed custody solution which is basically giving our same technology to a to a potential partner in order to have them serve as a custodian we see a lot of that demand also from the traditional guys so you know when goldman sachs invested in us last year that's obviously an indication the more traditional demand coming into space can I can i press on that a little bit what what is a lot you use the word a lot quite a few times there what do you mean a lot are you able to quantify that it can you tell us a little bit more yeah I mean look you know there there are definitely some I mean you know there are definitely some hurdles to having them sort of come fall in as we know right we all say like you know Vicco we say that we're building trust in digital assets right this whole panel and a lot of what we're talking about here is about doing each of our pieces in order to create the framework that these guys can get involved there's regulatory uncertainty we have the regulatory panel earlier today all these together collectively come into play however you know they all sort of interplay together so the regulation can't come out until they're comfortable that there's a market structure that's conducive for this so what we're doing here is you know it's literally part and parcel that that that will allow a lot of this to move forward so yes we are seeing when I say a lot of demand again not using you know number of clients or a number of assets just you know to you know for protection but we're definitely seeing the firt like a lot more diligence questions a lot more signing up of accounts a lot more testing the water certainly from the family office side seeing a lot more people that are starting that way and that they're all gearing up for sort of what that next house is gonna be so that they're positioned far enough let's go yeah I mean it's a bit of a chicken and an egg problem you know institutional money I don't think he's here like because if it was here then the price would go up like you know Bitcoin wouldn't be at under 4,000 if real institutional money was was to flow so it's a bit of a chicken and egg problem but but maybe like the infrastructure needs to be here like you don't have real custodians and actually you ask per region it's the same in every region okay I was in Seoul yesterday same program that I see in New York same problem that I see in France and so you need you need the infrastructure to come and the technologies to provide this infrastructure are very young I mean we launched our product like a few months ago but go has been in business maybe four a little bit longer but like not for the past 20 years either like you know we are very young companies and this technology is very young and it's very hard to manipulate so so this type of technology where you cannot really get it wrong again because if you if you get it wrong then then you lose the asset so I think what we're seeing right now when we say institutional money is coming in it means that the difference between the crypto winter of 2018 2019 maybe 2020 and the crypto winter not a prediction I don't know do a prediction yeah that we believe the market will pick up in 2021 this is this is what we're betting on I'll treat that yet with that if you like but like 2015 2016 that was like a nuclear crypto winter is like you know you when you speak to people that would I would throw anything that they had at you because they want to know about Bitcoin they thought that it was terrible etcetera now actually we we have a lot of meetings with financial institutions that all saying that bitcoin is okay they even think money row is okay like you know so they're happy to go after every and any coin which is really good meaning that you know institutional institutions are really looking at this they really think there is a play they're looking at it also from tokenization perspective they actually sometimes say I don't care so much about Bitcoin but I understand the technology and so me as a financial institution I'm thinking more but like all the assets that have and the tokenization of these assets and so they understand that they need to to have the custodian that because the Ksenia in the can manipulate Bitcoin can manipulate a theorem can manipulate like any other token that they're going to create on top of a protocol and so I think that's what's interesting so they're definitely coming now it's going to take two years so that's why you know 19 20 and 21 we'll see things interesting but the infrastructure play is going to be is going to be long can I just press on South America a little bit there's a narrative that runs at least you know in parts of the media circles hyperinflation economies you know about how Bitcoin and certain other coins are doing really well are you guys seeing any of that translate into inter demand you know whether whether it's through the qualitative conversations you have or actual assets that that may be under custody no okay all right let's let's go to you Alex yeah so maybe are giving a very concrete example so we starting relaunching next month and I know that we will already have between five and ten customers from the start and let's go through the type of customers that we're talking about here so we have high net worth individuals who are well have been holding our assets on their own on Ledger's on or other devices that actually don't sleep at night too much because they this stress of losing a distrust of if they have an autistic environment with a partner that something goes wrong so these guys actually don't want this pain anymore they rich enough to be able to pay a little premium to a custodian to do it so that's one we have crypto funds as well the traditional defense so crypto institutional as I call them guys that have been in this space for from the beginning we have large amounts of crypto of course the value has gone down but will go up probably in the future and they they want to be able to focus on their activity which is not custody their activity is finding companies to invest in invest in the various projects that they believe in they really want to focus on that activity and leave the operational and technological burden to someone else and pay for that they have no problem with that and then I also have for example a issuer of token we don't want to to deal with the operational structure that we were set up to distribute these tokens to people investing in it in its product and to actually collect the ether or Bitcoin or USD C that will be used as a capital raising mechanism so so that's three examples of customers that I know I will start with in April it just shows that it's quite broad but of course I'm not going yet after traditional institutional investors I mean I'll leave that to bid go and and other bigger guys but yeah that's how I could describe concretely what we see here if I can be controversial just to wake up the room like you know when we speak about Institute money I mean you know I agree with everything you said but with the tip type of players that describe that's not institutional money and by the way I don't have a financial background so I don't know what I'm talking about but like for me when I hear institutional money I'm thinking like you know big investors big banks like you know the guys that that I've done Wall Street's etc you know when are they gonna spend a dime on on buying a Bitcoin and they're not yet know they don't know they're not yet this is why every time we speak about like who is in the space like we say crypto hedge funds and you know all these guys that are you know playing with coins every day because this is the only reason why they have a business and which is great I guess we oppose them versus retail customers right all right what Henry I'll let you chip in god that's no I think we completely agree you know we everyone we talked to is interested in crypto and digital assets but the honest truth is that the big institutions institutional money hasn't yet come in precisely because they say not just custody there is this whole long laundry list of missing infrastructure and until I see that I might experiment even right but small amounts but I'm not gonna go in a big way and certainly for us I think still crypto and digital assets are a tiny fraction of total assets that we custody administer as a business and you know to me actually the really interesting thing is securities and digital securities is what we personally are very excited about and I think that when that shift happens there will be a lot more interest in volume in this space because quite frankly total crypto market cap now is not even the size of Apple right to put it into context of global capital markets and I think that when people say okay well not just sort of crypto native tokens as you might call them but you have real-life securities real-world assets digitally represented as an institutional investor I understand that a bit better and as the the infrastructure begins to get built out in this space that they are comfortable with the digital part of a security that's when I think you'll really see big money and big volumes coming into the market yeah but one type of customers as well that we likely tone board is smaller crypto exchanges so exchanges who wants to launch but don't want to have to invest the millions necessary into a strong and robust infrastructure for custody and don't want to do that manually so we all see the news about crypto exchange being hacked every two weeks almost if you go about on average the smaller ones see a benefit in being able to say to their customers we have a custody Solutions for the assets that are not traded on a day-to-day basis and the smaller ones obviously are the ones that are more likely to use a third-party custodian so to summarize it it sounds like institutional demand is mostly self contained within the quick within a quick system and some certain early adopters versus not a global traditional financial services institutions but yeah but there's been like some recent announcements with fidelity backtick cetera I mean you know it's coming for sure right and two years is nothing two years is nothing that's right let's talk about cyber security a little bit did this topics also close to me I have an applied cryptography background what still why do people keep losing crypto assets and what can the custodian do here the whole internet I thought runs on PKI infrastructure I mean don't we know how to do security what's the what's the impediment here and why do why are there so many instances of cyber security incidents or for crypto I think there are many reasons why but the human factor is always the the main element into security breaches in a sense that and probably will second me on this but like to do the custody today of like crypto I said sometimes it's like a computer offline in the dark room and so that's that's the security but you still need someone to go to the computer at some point like to do to do to do to do some things and yes you have multisig etc but like the the I think the space like in terms of like the technology that was available to actually do custody' or to do security was so in essence that it was you know just really bad and actually you know the banking industry in the telecom industry have been running on on far better technologies for the past twenty years this is the type of technology that we then now try to apply to the space but it's an expensive technology and so it's interesting when you say like you know a new exchange now you know rather than investing into the security they're gonna seek a third-party custodian which which is true but but it means that security actually has a cost and it is expensive and especially in this space it is expensive because it's real technology so that's why you need to have real technology companies that develop real products and then take it to market but and the technology that try to eliminate the the human risk factor because you even for crypto even when you own your own private Keys which has to come back on something that we're saying before the single point of failure is still the human you know if I know that you hold a lot of bitcoins the only thing I have to do is to torture you a little bit so you give me your private keys and then I can steal your money so you steal the single point of failure and so you know the technologies that we're putting in place sort of enforce the type of governance and even individuals in the future will want a custodian just for that simple reason because if it's known that you have cryptocurrency actually you open yourself to a whole bunch of attack that you don't want to have like you know on your person someone was just kidnap in in Kiev the other day because of that exact reason it's been quite a story yeah so you know governance is going to be increasingly important as the price goes up and you're right like you today the asset is worth nothing but let's say that sto is work etc and suddenly you have real estate that is tokenized like you have like all these wealth and value that is tokenized then you know custodianship for the individuals and/or for companies it's going to become increasingly important and the technology at the heart is going to become critical okay yeah I mean I will give you a quick second here to run out of time yeah no worries I would just add very quickly I mean like if you think about what happens here in this space initially this was a space that was utility focused first and security focused second so all these exchanges who launched their their bread-and-butter their you know their niche was not in security they were literally focus on how do we sign up hundreds of thousands of users all the time and so that's it's not it's not you know rocket science to realize like this was gonna happen right and so this idea of sort of you know it is great to hear that exchanges are certain obvious ly we see this which is just being a bit smarter now recognizing hey let's focus on what we're really good at and let's bring in the appropriate partners to provide security the other side I think you're also right on on the custody side we're not removed from that once you go into people in process like you know you know we like to say our chief security officer says I like the biggest concern is you know is is you know hostage taking and and other types I mean really go into very scary places but it is true that when the single point of failure or when you know the area it's compromised is the human element you have to make sure that you have appropriate policies and procedures to make sure that you're they were dealing with each and every one of those types of attack vectors excellent have a lot of questions but we're gonna have to stop here I do it I do want to ask you the question of the day I already got your answer when moon 2021 I'm gonna build the tweet of the day as well here Josh when moon yeah I would say probably also end of 2020 2021 again the point I said before I think is huge what we are doing here this is I think just an important piece to think of it is only one of the pieces what we are doing here is such a critical component in order to make this conducive for more explosive growth so the more in this and this is the trade off that hat really happens in this industry where it's true you're right your first question you said sort of like hey you know doesn't this go against what we're trying to do but at the same time we are trying to drive overall adoption and that's gonna happen in a framework that Alex and villainy 2320 what they do best and he'll and others like third-party custodian to focus on what they do I'm going to remove all these caveats Henry I'm gonna be the party poop on the panel across our business I think we are ready regulated in like nine jurisdictions and we're always very shy about providing any kind of price predictions or advice alright some of our regulators are in the room as well so well it means it's a prediction so we don't have a prediction from you I'm gonna push it like I said I I think that a lot of institutions need to see in infrastructure build not just in custody you know I'm sure throughout today we'll talk about technology custody the way in which you can buy and sell things all of it I think needs to come in before not just institutions but you know the man of the street is comfortable we're saying yeah I should invest in crypto the way I invest in you know Apple stock all right very good that think that's all the time we have time's up sign is flashing here I want to thank you guys again star cast panel let's give them a round of applause everybody [Applause] you