Onboarding Institutions - TOKEN2049 Singapore 2022

excellent so thank you very much for joining our panel I think we have a very interesting topic or like a talking about a really nice to have problem which is about onboarding clients and services uh into the crypto marketing services so before we start I thought it was a good idea just maybe very quickly go around uh maybe modern Academy if you want to start just like introducing yourself maybe your company keep it short and crisp and then we Jump Right In uh hi everyone happy to be here and see a lot of our customers friends uh business partners my name is Khalid matoriev I am a co-founder and managing partner at nexo uh the largest retail oriented crypto lending platform which has an uh multiple integrated services such as borrowing Lending Solutions trading for a retail and institutional clients and as you may have seen um uh the biggest news over the last couple of days we also made our first investment in a federally chartered U.S bank which is one of uh the um you know many steps that we'll take in this direction to integrate traditional banking service on our platform and then the next step will be wealth and asset management all under one platform all right hey guys uh my name is Anand Gomes I'm the co-founder and CEO of Paradigm um Paradigm is an Institutional liquidity Network focused on derivatives um you can think of it as an uh over-the-counter marketplace where institutions buy and sell crypto derivatives um you know at this point I think volume wise we're about 35 of the global options Market we have about 2500 institutions of the platform um I think at this point we're both the largest as well as the fastest growing uh institutional network uh in crypto foreign hello everybody uh Ben castlin VP Global Marketing and head of research is ax um ax actually went live in 2019 and we had a very strong institutional Focus um but actually you know we evolved Beyond it to a different place and I think it'd be very interesting to to share about that uh main products are like uh savings Futures Trading spot trading actually in July we came second just after binance in spot volume globally um so you know there's been a lot of changes over the past year especially around Emerging Markets so I I will yeah be very interested in this conversation thank you excellent and maybe that's a good start obviously we'll um when you talk about onboarding you have various types of clients and around what you said around institution or maybe you can start there what you see are the trends particularly when it comes to institutional players coming into the crypto Market the trends and onboarding then maybe giving your experience if you want to maybe then respond to how that what your opinion is on that yeah sure um you know over the last like six eight months or so we've seen um a big big bush from institutions both in terms of you know the allocation the amount of money they're allocating towards crypto um as well as sort of the um the the tools and compliance uh processes and Etc they demand on platforms such as ourselves so you know our you know we've had to add almost a full-time sort of Ops Team now to sort of help these folks uh jump on because they have a bunch of like you know DD processes that they go through before um but also just in terms of like the tools they're asking from us in terms of the features and from the recording perspective and an execution perspective so um in fact you know over the last six months as you probably know you know people are calling into crypto winter uh and volumes are down for the most part or our volumes are actually up so we've almost double market share in the last you know six months or so uh mainly because the uh from a relative uh basis the institutional cycle of the market is growing way faster uh than the retail of folks okay and maybe Ben is just very quickly on this like institution versus retail do you see like big differences between how these two uh segments look at the onboarding process I mean it's quite interesting right that we make this separation between the institutions and Retail so like when ax was founded it was in 2018 this was right after the all-time high right Bitcoin went to 20K and then started to come down and I think everybody kind of understood like okay this is this is this is not going away we need to build this out and build it properly and so okay we founded the exchange and we implemented like we were very very fortunate to have a collaboration with uh London Stock Exchange group and basically uh we're the first exchange crypto exchange to deploy the the same matching engine that runs on the London Stock Exchange um and the Mongolian exchange okay and so you know this was our play and we knew that if we build out the right infrastructure and set the right settings and we're able to kind of operate on par with traditional exchanges then surely we must we must attract institutional Capital it didn't happen why because the institutions were looking for retail to trade with us and there was kind of this idea like they kind of the idea like you know they need the liquidity of retail and I don't know this this really changed our strategy like first of all we had to focus on retail big time but as we start to focus on retail when you get into the story of course we're not just setting them up for the institutions to kind of profit on so the story becomes different and you realize that actually instead of price and trading we should actually talk around kind of the use cases especially for kind of the majority of the world right in a place like Singapore most of us you know have bank accounts we we kind of we can rely on a robust system uh the majority of the world 6.8 billion people don't and so in the conversation as as we started to engage retail you realize that perhaps sometimes the institutions even though they're coming in on Mars may not just be aligned yet with the kind of goals of the space and and and that is I think a little bit of a problem because when we see this instability so with Celsius and Luna a lot of people will come in and say ah okay we need to put track five principles on top of this I think we should question that and think about perhaps some new principles that we can build new Financial systems on um yeah yeah okay then I think maybe to bring you in and we had a chance actually before and even yesterday I talk a lot about your business and I think think these were similar themes you raise the Norms of the risk management and best practices in that market and also the institutional versus retail trading so maybe if you want to give us your perspective on on those topics uh yes I absolutely Sven uh we had a very good conversation around these teams and this is that no matter whether you're servicing your retail customers or the institutions that are onboarding with us inevitably all of them want the same thing they want you know obviously the best UI that you can offer to them the best execution uh and and last but not least risk management when it comes to the institutions you know it's a much easier conversation because the institutions by default you know have already their policies procedure systems they know the questions that they need to be asking and many of them you know engaged in a formal uh due diligence process where all of these aspects are covered um I really wish you know that many of the retail customers around the world who are doing their homework as well you know before they blindly entrusted you know their assets to you know multiple platforms you know that only did an excellent job at advertising capabilities which unfortunately weren't there or advertised business models that didn't really exist on a on a sustainable model so um you know for us it's a completely different approach uh whether it's with our retail customers whether it's with institutions first of all we always build our relationships on full transparency one of the things you know that uh as many of you have noticed is that we were the first institution that introduced real-time audit of our uh balances on our platform you can go to our website and you can see in real time that our assets exceed our liabilities in real time at all times you know and perhaps you know many customers know also wish to see that on the investment bankings in our platforms back in 2008 you know when everybody was wondering you know are these guys solvent or not there is a real-time verification for you um you know we have uh also uh full transparency when it comes to our financials and we're readily available to share that with our institutional counterparties um as far as execution is concerned we try to be as agnostic as possible so we're not an individual exchange you know we don't direct and uh and uh um essentially navigate trading you know just on one platform we take the best execution where we can get it in the market by uh you know connecting to 20 plus exchanges and liquidity providers if you are an institution if you're a retail customer and you come and look at these benefits I think it's very easy we make it easy for any uh you know client uh segment you know to come and on work easy with us and feel comfortable that we're there to protect our are interested thank you I have a slightly maybe different perspective than Ben I think I don't think we really need a rethink of principles because risk management is risk management right I mean people have been managing P L's and um certified for a long time um but I do think you know we have a chance here you know to your point about reshaping or rebuilding a financial system I think what we can do is approach these use the same principles but but have technology first Solutions and specifically in web 3 have solutions that preserve the principles of you know web3 right and not remaining non-custodial where you can try to be as permissionless as possible um and and not everything needs to be decentralized not everything needs to be on Chains It's like take a you know take a like a almost a pragmatic approach towards like okay you know we have this new world there's this new set of principles and yes we want to move towards these um and but we have this old world that's kind of stuck in its way days and there's this inertia that works against you how can we bridge this world um but not sort of in an idealistic way but a more sort of practical way what we strive to strive to do is you know you can think of us as like a you know web 2.5 company that's a sounds like a bad word but you know we've we've sort of managed to stay in C5 in crypto but remain non-custodial remain permissionless we don't have kyc but it doesn't mean that our customers do not give USD because we rely on the exchanges uh for that their customers are kyc but we're non-custodial we're no cost things like that right so I think you know the devil is in the details right like and you really have to think about you know taking a practical approach and I think part of our success is really being because we've taken this sort of like you know in the middle approach right not neither here nor here uh but ultimately that sort of gets the space forward yeah I mean it is a good segue I quite like the theme around the principles of a web uh like a risk management particularly when it comes to also decentralization to what extent uh really it doesn't make a difference when you look at onboarding is it fully as you described you're relying on other third parties and their kyc standards and you accept that and how can you prove that so just wanted to get your take really maybe Ben if you want to start in terms of doesn't make a difference if you want your risk management your onboarding few around the level of decentralization you um you incorporate into this process well this is the thing so I really like your comment because of course first of all what are we decentralizing right we're not really talking about decentralizing the whole world like we don't need to decentralize marriage for example right there's plenty of things we won't decentralize hopefully but um what he's mentioning I think this is great but it's very trade oriented and very investment oriented and I think that comes from a place of you know it's it's the the kind of developed World 15 of the world has access to a lot of the concrete but again if we look at um any place Afghanistan uh six percent of women maybe has a bank account there is no access now it's it's about risk management but the whole language around that risk management is different right is how do you hold custody it's not even around like the trading or or any of that not saying I'm not saying it's you know we're trading platform but what I'm trying to say actually is that the investment thesis in this whole digital asset space must be on some core principles including at least a good degree of decentralization like if we were to take this this and let's say you know co-opted by JP Morgan co-opted by the Banks and institutions um I think the investment thesis is dead uh then it's just trading tokens for the sake of numbers going up and down and that may be fun uh it's not so fun for like some people that may not have so much money in excess to spare right so I think the I agree with you of course in terms of our trading systems and you know onboarding institutions they care about liquidity they care about the matching engine transparency but then there's a lot of use cases behind that that are if not more important in terms of the actual reason of getting into the space because it can't just be volatility like volatility is attractive for the Traders yeah but volatility is is also a sign that we're just not there yet right yeah but in terms of this this point when you're describing institutional investors coming in and you're and I quite like your comment do we then have to sacrifice the principle of decentralization do you see that same conflict or do you think there's a way to bring it all together particular uh what you have been doing in terms of combining both retail institution on that platform I believe that there is a conflict you know and and unfortunately you know in today's day and age the way financial markets are structured you know this conflict will persist you know while um you know decentralization brings a lot of innovation you know and and makes things more frictionless uh it can it's not a Panacea it cannot solve all problems you know in anand's case you know this is very clear you know there is you know basically uh a decentralized facilitation of you know um you know centralized institutions you know meeting in a marketplace where they can execute more seamlessly but as he pointed out you know there's always you know some sort of uh you know let's say fully compare compartmentalized processes again for kyc you know AML you know source of funds you know and everything you know compliance related regulatory issues um you know b2c you know centralized I I think you know at least you know from where we come from is you know has a long long way to go you know because um first of all you know this uh you know speaking again from a perspective or a centralized platform and you know in our dealings with the institutions which is a topic of today's conversation institutions want to make sure that they know who they're talking to they know you know who's behind this platform you know they of course you know need to be very comfortable with who manages the business who are the ubos of the business you know in defy this is you know largely missing uh you know one big question you know that has emerged in over the last six to 12 months I would even say probably even more 18 months is that institutions want to make sure that there is isn't any chance that their money will be commingled with dirty money you cannot guarantee this on a you know on a D5 platform so um you know and then there's also all kinds of operational issues you know when it comes to payment settlements you know fraud prevention chargebacks you know things like that um again I I love the D5 model it is great you know in a frictionless world uh you know uh and it is it it creates a lot of opportunities but I believe you know that these opportunities for the time people remain on a small scale because all the requirements you know that institutions and even you know family offices High net worth individuals uh even retail customers you know retail you know we have a ton of inquiries you know every year from people saying please help me with my tax return how do you get that from a D5 platform um so yes you know uh uh there is I think you know that for the purposes of scaling our businesses um you know continuing to grow you know at the moment our user base of 6 million people and over 100 200 jurisdictions CFI is the way to go for us excellent I think just a quick sort of AD you know I think from a product perspective I think you know we look at it as the customer like who are you serving and what is the size of the opportunity right and you know if your customer cares about this civilization then yes you should be decentralized right like who are you serving I think that's the most important question people projects protocols companies kind of tend to forget that from time to time and so you know frankly we think the people we serve they don't care about decentralization right but they do care about non-custodial so if you think about the principles of web 3 there's non-custodial there's permission list there's um decentralization um and if you know you're making that trade-off as like okay yes these principles are great we want to Aspire towards these but if I Implement them with my customer care and in my pursuit of serving and personally like I guess meeting this opportunity or serving or trying to capture this opportunity and we we find that people don't really care about decentralization you know they care about the customer experience that how easy do you make it for them to consume whatever it is that you're you're offering to them right um you know I used to think it mattered a lot but now as we're you know more and more we're serving people you know nobody ever asked us on a client call like are you decentralized or not they will ask you you know what are you like are you non-custodial right and things like that and they ask you about permissionlessness not in the in the you know within the context of like web3 but more like how easy is my onboarding right do I need to do extra kyc because they don't care about necessity about like giving you the information but they care about the hurdle of going through that process because kyc is like onerous for institutions you got to give UVO information it takes time and people want the product or service immediately right so immediacy matters and so it's it's a little bit of a nuanced view but I think generally speaking it's always a trade-off But ultimately it's about the customer like do they care or do they not care yeah but it's just quite interesting because um you know me working for state two Ages which is um like a 200 year old Bank um I'm coming very very much from a centralized Marketplace and I've become more and more of the years like a network at off this level of decentralization because it's different to if you want a traditional uh worlds and really based on the expectation that there are Technology Solutions that can facilitate this and maybe you can look at this what your experience is in terms of what kind of Technology Investments that you have to make in order to facilitate onboarding and comply because I can imagine in a way there's also a lot of innovation that helps you to generate if you want the scale uh and and foreign technology aspects to have a successful onboarding process in the market you operator well I mean I can I can I can say a few words here because this is a process that we have been going through for the last uh three plus years in our interaction with that with the institutions based on our previous you know uh proven success with with retail one of the uh references you know between let's say you know the blockchain space and thread files that all of us you know here and all of our companies are driven towards Innovation you know so we are much quicker to adopt technology and to use it in our work you know to make it um more efficient for us on the operating level but of course you know make it uh you know much more engaging and effective when it comes to our uh interaction with our clients um so I think you know that this is definitely a winning Competitive Edge here in the crypto space um of course uh uh anywhere you know where you can add technology to eliminate a human involvement and eliminate the you know friction and and problems that arise from that uh it's something that we have done from day one so in these same type of best practices we translate it very quickly on the institutional front when we started our rapid development there so things like you know going through the onboarding process the kycdml in a fully automated way you know the institutions onboard the documents you know they are automatically verified we have third party service providers that help us you know with doing the background verifications you know so that you know you can get you know a much quicker verification as opposed to employ employing you know let's say I don't know you know let's say 12 uh 15 50 people you know that are manually you know going through documents this is obviously immediately one Improvement um but as I mentioned earlier one of the one of the important aspects for for institutions is to make sure that the partnering institution meets their their risk management standard so uh you know things related to uh the origin of funds uh you know we have those systems in integrated again into the normal operating flow that verify that you know funds coming to our platform are clean you know they're not tainted they haven't gone you know through some sort of mixers or aren't related to uh wallet's flag for uh you know for yeah hacked funds or or laundry money uh or anything like that we have additional systems you know that automatically provide Geo blocking for certain uh markets and jurisdictions around the world and unfortunately due to political reasons you know we stop at a very early stage of assessing whether this is a a viable customer that meets our standards unfortunately with certain jurisdictions you know they're excluded uh you know uh from our platform um you know merely for you know being part of the offic list you know let's say so anything you know where uh you know we can manage risk you know and and meet the institutional expectations on the same level without making any compromises part of our daily operations well I think this is it's maybe a good point that um we have to keep distinguishing between the assets whereas let's say the protocols and the platforms where people might want to kind of engage with them right so I can understand this rationale completely you have we do the same like we actually so we don't serve Afghanistan not because I I don't want to it's just you know it's very difficult for a centralized platform to get around certain Global sanctions lists and these types of you know they're almost hard-coded at the moment but when I when we talk about the space I think okay this is one conversation right how do we serve as a platform where there are definitely benefits uh the centralized kind of services um but let's look at a protocol and let's just go to the base and just look at Bitcoin and um just within that within that protocol we can see the transparency and we can see the the kind of uh the decentralized features that that make for a healthy you could say a healthy a healthy basis to build on um and we should distinguish that because I would say the assets especially the assets and the protocols need to be quite robust to have a long-term you know whatever happens to the centralized platforms we can evolve we can change quickly that's the thing we're quite agile we can move from jurisdiction to jurisdiction but let's say something like Bitcoin should not have an opinion on the Venezuelan versus the US versus the Cuban versus the Afghan it can't and otherwise it's that's like no these assets are Like Oxygen if they're proper they should be nurturing they should be empowering and they're for everybody I think that's very important and luckily they're permissionless so if they can't get it with you they can get it elsewhere or in D5 or somewhere else and I think that is quite quite important as a principle maybe just a follow-up question this is something that I'm sort of obsessed with these days if your thesis isn't I think I've heard this uh from everyone on the panel that we do see more institutional money coming into this place and they are in a way subject to higher levels of kyc Standards because they are regulated themselves doesn't that then over time also impacts if you want the protocol not at a code level but if all the users effectively bind themselves to operating principles that no longer are in the blockchain protocol but are now imposed on them externally is it still the same decentralized network even you know we've seen we've seen this happen maybe it was two years ago when there when there was this push for I think it was Bitcoin transactions I think Marathon was kind of getting on the idea like okay maybe we just only we distinguish between like green you know like properly mined Bitcoin and those that were like used with you know burning coal and stuff but I think the community uh pretty much shut that down I think that's very good and we'll see now with ethereum there's some questions around uh reversible tokens um I'm not a fan but I'm maybe a principalist but I don't know how you think in this this I hope we're not moving towards that we don't have to mimic what's already existing you know we don't have to do that because that didn't work yeah exactly I think um I think that's why it's super important for the community to start pushing self-regulation or self-policing um you know there seems to be two camps there are camps the regulatory camp and then you know unregulated sort of wild west and I think humidity can do a lot more to say like look you know we have this under control we're doing things to sort of regulate out the Bad actors and everybody agrees child pornography terrorism all these things are bad right nobody's gonna say these things are good so I think if we start the community needs to do more this is one thing I really believe in um and because if we don't do that then you know the hand of Regulation is going to come down really hard yeah and then we're gonna have to live with this thing that nobody really wants to live with so you know we're definitely pushing for that I think you know you have to be willing to engage with The Regulators you know where they're willing to engage you know where there is some reciprocity um and push for things and really be sort of ambassadors for change uh I think in Singapore that's one thing we see a lot you know it's one of the reasons we moved here is just the community here are The Regulators is just a conversation of equals they they want to know you know what they can do to make this better what they can do to make this safer and you know if you're there and you're saying hey this is how we think we would do it I think ultimately you know you know debate you know and discussion leads to better policy right and so um yes because if we don't then you know the future that you're talking about might be materialized and that's nobody wants to live in that future exactly um Sven I I really enjoyed that you asked this question because this is uh um an integral part of our internal conversations on a very regular basis and this is that you know when I have conversations with colleagues in the space here right now it's sometimes it looks like you know we try to imagine that there is a fine line you know between you know both parts but in our experience you know our position is that there isn't you know there is a very very firm boundary between whether you want to operate under the radar cut Corners you know basically try to be as flexible with your customers you know so that you desperately you know need to attract them on on your platform and uh and build your business on the other hand you know nexo you know for us you know it has it it has been really easy you know make really easy because you know we have made this decision on day one and we have never made any compromises I made I made it uh a comment earlier that uh in addition to our leadership role in the blockchain space you know we are currently very quickly advancing in traditional Commercial Banking around the world we're working with the traditional financial markets by bringing over asset management and wealth management so there's plenty of you know of conversations we're having along the way with Regulators with institutions not such a straight Street you know obviously uh and for us the decision is quite easy you know it is more difficult for us right now I mean again you know we have six million customers you know we could have easily had 10 million you know if we made these compromises but to us you know it's a very simple answer it's not worth it you know because you know we want to go on on us on a simple path you know that you know makes us uh a responsible and and um a dedicated Partners to these institutions they know that with us you know there is uh no uh chance you know that we will not fulfill our um you know fiduciary duty our you know compliance requirements you know no no dirty money no no questionable customers this is the only way I've always said that the quicker the blockchain space starts looking and feeling more like Wall Street the fast faster and the greater the adoption you know and I'm again you know everybody's you know can have their own opinion you know but I think you know that all these you know um you know um uh you know things and proclamations you know we had back in 2016 2017 even 2018 you know how you know this is going to be our own you know Merry community of marauders and Pirates and you know we're going to build you know this humongous you know asset um you know class and uh and um you know Market segment you know where we will operate you know doing whatever we feel we need to be doing you know self-regulating ourselves but yes at the same time integrate it into traditional financial markets I've always said it's never gonna happen you know so you know there is you know practices principles policies systems you know that have governed the uh traditional Financial world for you know hundreds of years the quicker we adopt them but you know maybe just with the twist of adding technology and improving processes and optimizing where we can the quicker you know we will see Bitcoin getting back to seventy thousand a hundred thousand and Beyond you know but otherwise we have no chance thank you unfortunately we ran out of time but I thought this was an interesting interesting conversation particularly From perspective like how much probably the 25 and the defense base have to learn from each other so thank you also thank you for the panelists and enjoy the rest of your day thank you thank you