Fireside Chat with Michael Shaulov, CEO of Fireblocks

[Music] hello everyone we are back from the previous discussion and what an amazing session we have ahead of us we have the honor to have michael saulk he is ceo of fireblocks and also charles walton he is senior vice president of identity at avast welcome on stage what uh what an amazing session we have ahead of us so please stay tuned and see you in a bit daniel thank you um thank you very much and i i i would have to correct daniel that the star of the show is is in fact uh michael all right this is uh really about the the topic of institutional adoption of of digital assets and and really quite honored uh the format we're going to take uh is a fireside chat with fire blocks and um uh really as daniel mentioned a fascinating topic again i'm charlie walton i'm i'm a general manager for the digital identity business uh within prague based uh based avast but uh that's a topic for uh for uh for a different different session um we're gonna take um uh probably about five minutes of questions towards the end um and through the course of this uh we'll really have a conversation with michael and learn learn a bit more about this fascinating topic michael's the ceo and the co-founder um the company is uh it began in in israel uh michael's been uh really a a serial expert in in this arena his his company lacun mobile security was acquired by checkpoint spent quite some time there um but impressively his prior to his commercial involvement pioneered mobile security in an elite military technology unit he he's been honored by the israeli government the presidency for his contributions there so michael welcome welcome today thanks for uh for having me and thanks for uh abc to hosting this session indeed michael maybe we can start um i would love to to to hear more uh both about your background and and the company's background in in your words if you could you could uh maybe start yeah sure uh so i think you you sort of provided a a good uh good part of it or just like you know the first uh i don't know 15 years of my career or so uh so so really well i've been in the cyber security space for almost two decades and as you mentioned my previous company was acquired basically by checkpoint and i i stayed there for about three years i was heading their mobile and cloud security practice and what happened in 2017 that essentially there was a cyber attack on uh on a few exchanges in south korea so effectively what we believe is a north korean hacking group called lazarus attacked those uh for cryptocurrency exchanges and they were able to steal what was back in 2017 200 million dollars worth of bitcoin now i think you know i believe that bitcoin back then was about the one thousand dollars so people can just multiply the numbers it's quite a you know quite a hey um and and we were part of the that even investigation team and what we basically realized is that uh there was a pretty significant uh gap in terms of the um the infrastructure right that uh institutional players such as exchanges trading firms uh retail facing wallets and you know and and banks that were basically looking to get involved in the space had and uh and predominantly i would say that what was missing is all the um transactional layer to to work with digital assets and with cryptocurrencies so you know if if if i'll take the audience back to 2017 2016 18 or so the ones that were involved in the industry probably have heard about companies like zappo and bitcoin and basically where those companies what they built it was a very effective cold storage solution right so you can basically place your your assets in um it was basically a disconnected internet guy internet air gap disconnect wallets right so uh there was no connection between those wallets to the internet and um they were basically spreading the key material the private cabin across uh bunkers and different uh military facilities and in isolated places in the alps and uh and then you know when you wanted to create a transaction you basically had to sort of bring that key material together silent transaction and release the transaction to the blockchain which is highly secure but as everyone can appreciate it it's a very cumbersome and complicated process that sort of undermines the narrative of uh blockchain and digital assets and cryptocurrencies being the uh internet of money right so if we sort of like fast forward and it sounds like it doesn't scale very well either yeah yeah it took people like 72 hours to um to do transactions and and because of that right really all those exchanges they were implementing their their own hot or warm solutions right that allow them to interact with the blockchain directly um so you know when people want to withdraw money from an exchange or they want to send it to a counterparty they're not going to wait 72 hours right so those exchanges and all the players were had to figure it out by themselves of how to um create an internet connected storage that is programmatic um and that exercise usually uh you know went down very poorly right because a lot of the people that were trying to figure out themselves got eventually either hacked or they had a very cumbersome and non-practical uh policies and procedures that they had to put in place and this is basically where we stepped in and figure out the solution you know which became fire blocks to initially solve the pain point of for people to be institutional but connected sort of bridge the the gap between um security convenience and speed and provide them an institutional great custody solution and and also a network for which they can uh transfer those assets got it michael so it sounds like the real the real advantage in uh in in fire blocks and as you you really got this thing going is this this combo of of getting this balance of of speed uh uh uh convenience and security that that that's kind of the unique uh advantage of fire blocks is that true are there other things or did i get it right yeah i mean i think that this is where we start right when we when when we started three and a half years ago i think this is essentially what we were able to crack the the convenience the and the speed so basically allowing those funds to be generally available to be able to allow people to sign transactions very quickly but also to remove the friction uh in terms of how those assets are being transferred from uh counterparty to counterparty because a lot of the issues that people had were actually around identity right so and the problem was that uh because it's an open ecosystem anyone can create a wallet you know the world is just a random number right how do you know how do i know that i'm sending uh the the funds the cryptocurrency to you right charles and not to some hacker that basically phished me or made in the middle or communication and basically redirected to their to their wallet and and that basically became the second part of the solution beyond the custody technology the firebox network and over the last three years we basically you know we expanded the solution significantly from that point and we built a whole layer of institutional apis uh policies uh backend integration that today it's almost like a crypto backend as a service right so if you are um um if you are a company that uh or in a financial institution um an e-commerce company and online businesses on that wants to gaming we see a lot of gaming companies nowadays that are coming into the space if you want to build a cryptocurrency capabilities we are sort of a one-stop shop that to to give you all the secure back-end got it got it and where maybe if you could describe a again a little bit more about where you see institutional adoption of of of digital assets being currently where where's the where's the market where's the customer pull and and and where where do you stand on the in the development curve i think that we probably if you sort of think about the uh innovation adaptive adoption curve right that uh i think we are now at the early majority right so i think we we passed the innovators we passed i think the early adopters and we started starting majority and by that i mean that we have um a very diverse group of institutions that are looking into cryptocurrencies so i think what most people are familiar with is is sort of the um you know pension funds um more like heavyweight institutional investors that you occasionally see in the news that they are buying you know 100 million 500 million of bitcoin but in reality it's actually a much more diverse right so we have a lot of hedge funds right we basically have a lot of great trading firms that are have been in this space for a while and we actually seeing on the hedge fund side uh this moving from i would say purpose build or dedicated crypto hedge funds that we actually see quite big hedge fund and asset managers that are trying starting to allocate and trade crypto um you're seeing a lot of the neobanks so before that it was really you had to go to coinbase you had to go to um you had to go to specific uh cryptocurrency exchanges like bitstem and so on to trade uh crypto now there is a convergence you actually see all those fintechs neobank so paypal clearly a revolut robinhood square and almost any fintech company that we are seeing and interacting with has now a strategy for crypto toward the end of 2021 20 first half of 2022 right so we're going to see all those retail wallets um being enabled in the regular app that you would use for your finance then we have the banks so a lot of the banks are now jumping in and establishing capabilities um we had some early entrants in in specific jurisdictions like switzerland but now in the united states even with seeing banks like uh you know from from the top banks like bank of new york mellon that are looking to launch capabilities next year to uh some of the more fintech banks like cross river and solaris in europe that are in this game and then i think the most exciting part to be honest is actually all those things that are not fintech or finance right because we think gaming companies sort of um looking at what axi exit did in the gaming space and they want to jump in and gaming companies inherently it's sort of like the the the intersection of gaming and the metaverse right so if you think about gaming companies they already have all those assets digitalized they're they having a company in most of those games they have digital currencies they have a virtual goods but so far it was all confined within the game itself and what x actually was able to do is to sort of show people hey if you open up the ecosystem and you ride on those rails you can actually build a much bigger ecosystem with nf season and that kind of stuff and um we are seeing most of the gaming companies and all people that are looking to do things in the metaverse and a lot of other companies in this you know streaming space content creation space and so on want to leverage nfts want to leverage stable coins and you know for me this is actually some of the most exciting stuff because it shows you how native it is to the internet no exactly exact real really a fascinating area and michael you you mentioned you mentioned revolut earlier on could you tell the tell the group about uh you know what you're doing with revolut the the the relevance uh to them to you and how how this is uh progressing it sounds to me like a great case study yeah rebel is definitely one of our best uh case studies and and i think a lot of the audience here the this is the european audience very familiar with rebels which became sort of this fintech powerhouse um globally really in europe and i think there are the largest and one largest uh neobanks so rebel was actually fairly early to the cryptocurrency game that they basically put some capabilities online uh in their app that you could buy a crypto um in their wallet um some form of experience and over the last year and a half they really wanted to start uh um they really wanted to start expanding the capabilities over there right so what doesn't mean expanding before that you can only buy and sell right so you didn't really able to use the bitcoin or cryptocurrency or salon or whatever you you're buying over there um you can only buy and sell it and um they wanted to expand those capabilities so what they use does is for two fold one is to basically using the fire blocks what network to build all their rails for liquidity so give people better prices to source for more marketplaces the coins that they they buy and sell and just to scale up their operation to the demand that they start to see over the last year year and a half but in parallel they also were able to really make um important features right that were were not available earlier so for example there for i think for platinum users right now they allow to withdraw right to his job that you can actually take the bitcoins that you have or the crypto that you have uh with revolut and you can send them out you know pay transfer it to a a different exchange and so on they're also working on staking and they're working on other capabilities that are are going to be launched soon and essentially all the infrastructure to do um both the the ability to scale what they had earlier but most importantly to start driving new use cases to start providing new products to their clients it's all being done on top of fire blocks because it allows them the programmability um of the infrastructure that they need and it provides in the compliance and it provides them the security got it got it really really cool um michael any other points to make i i suppose with respect to cases around decentralized finance or payments is is there anything we haven't covered that you may want to comment on with respect to those use cases yeah i mean i think one of the exciting things that we're working on right now is really to bring bfi to the institutional market right so um for for those who are not familiar decentralized finance is something that was had a really huge sorry impact on the on the ecosystem in the last 18 months or so um and those protocols really allow customers to um interact with the blockchain and interact with financial applications in a way that was never uh feasible before before dfi right it basically opens it up it's sort of like for me it's almost like the open sourcing or the app store right for financial application that anyone who has an idea they can deploy it the problem for for most financial institution is for is that um it's it's too open right so it's it's unsanctioned basically anyone can interact with it and therefore for financial institutions that have licenses such as money transmitter licenses or they are licensed custodians or licensed banks that introduces a problem because they have regulatory obligations right they need to do kyc and they need to assure that the party that they're interacting with is um not on the sanction list right or or is not uh there is no sanctions that are enforced on uh on that entity otherwise they can basically jeopardize uh their their uh license and um and because defy right now you interact in an ominous an anonymous way they couldn't participate in that so what we basically created is one of the first flagship pro project is is a project called ave arc which is the first uh um the first uh sanctioned market or or the first permission market in which through the fire blocks network we deploy the identity into the protocol and guaranteeing that the participants in that specific pool are kyc their identity is known and i known in a sense it's not always known to when you transaction but it is it's guaranteed that the level of participants in that pool um is above the compliance level of of the other people are participating and therefore it allows licensed institutions to to start working with defy which is really exciting because as an example in if i if you convert usd to um a usd stablecoin you can generate somewhere between four to six percent yield right per year and clearly something that you cannot do right now in uh in the bank right i think in europe you have negative interest rates in the most places so um this is a very interesting and exciting area of development um that we are pushing hard on and there are other products that we are looking to bring into this kind of permissioned compliant ecosystem uh which will we believe will unlock even more and more participation and on payments michael it's it seems that there's a there's clearly some value in in cross border um what what what else in the payments arena where does that begin heading yeah so um on the payments arena we we are working uh with quite a few payment providers um right now to enable them to um for example do payouts so it's mostly right now on the b2b side um where most of the interest over there is really leveraging stable coins right because as an example we as fire blocks about 30 of the invoicing or basically the the payments against the invoicing that we do we actually receive unstable coins um rather than uh through a credit card or a ach or a wire and the reason for that is that um assuming that you you use stable coins that are riding on blockchains that they have fairly low fees gas fees it's it's super cheap it's cheaper than any other um payment method from you know what you pay for processing it's extremely fast um it works 24 7 you don't have any cut-off times and um it's it's extremely efficient especially in the cases that you have cross-border transfers right because when you do cross-border transfers it's not sometimes take you takes you two to three days you need to deal with reconcil reconciliating is sometimes those uh those transfers are are bouncing back yeah with stable coins it's so simple especially when you do that over the firebox network so we already have quite a few clients that are basic that are leveraging this technology to streamline international payments uh payouts and so on um i i also believe that in 2022 we will start to see some of this propagating to the retail side to consumers because uh we we're starting to see the infrastructure being built over there you know some of the people might might have heard that finally a libra dm um and then our facebook sort of initiative have launched using uh the boxes um it's not available as a beta in what's up so i think we are sort of on the on the cast of uh this propagating to um to uh um the mass retail market yeah cool got it listen we got a couple of questions and maybe we can take them and i want to give you a moment right at the end to to give you a view into the crystal ball for the next few years but the first one was a more of a market question and and in terms of customers that take care of custody by themselves versus those that are that are dealing with licensed custodians any any comment on on on this kind of market setup uh matter yeah so i think that what we uh we we see both and i think it really depends on the some of the regulatory uh obligations and the regulatory licenses right so as an example in um in germany um where there is a fairly clear buff in licensing um you in order to be a custodian you actually need to have a license right otherwise you can basically you cannot hold crypto for other people you can hold it for yourself so you can directly custody your own funds um but we see both in the united states as an example we most of the institutions that we interact with they are quite comfortable with direct custody so licensing in themselves um or sorry uh custodying themselves using platforms like fire blocks right where you do direct custody although uh there is also the notion of a qualified custodian and then usually we have quite a few custodians such as banks and trust companies that are using our platform and then they they are able to operate as a qualified custodian and custody funds for uh for other uh institutions got it got it i you mentioned regulation uh as as a matter and i i know there's another question from the audience and it's really you know how do you see the the um uh the regulatory environment dealing with digital assets how quickly is it going is it going quickly enough and are there are there countries out there that are kind of doing the right thing in in that respect i think it's uh it's definitely going into the right direction there are there are countries that uh create i think the most important thing right now is actually clarity right that's that's what makes things uh complicated and inconvenient for uh uh for a lot of players especially in the institutional side because institutions like clarity they don't want the ambiguity in terms of what they uh allowed to do or not allowed to do right because then they can find themselves on the wrong side if eventually the clarity is different from the ambiguous situation right yeah there are countries that uh there are countries that have a pretty uh clear regulations at this point so for example switzerland germany um uh singapore and so on um there are countries for example the united states that uh given the fact given the amount of regulatory bodies that exist there is still somewhat of a commotion in terms of uh what is the regulation although there are effort rights right now that are on the government level to really create and standardize it great great one more question quickly michael is is is really on the the risk of crypto self-custody and and and really the risk associated with loss of uh private key um the the person in the audience was was wondering uh what what is how do you view that risk on digital assets yeah so i think that um there are many different forms of uh of uh what people think about soft cases so originally people when people thought about thinking about soft custard they think about using a ledger nano right which is sort of or or a treasure which is like a disco key that they have themselves and that's what people have in their mind is self custody and then of course how do you back up the private key is uh something that is left for the user right you you write it on a piece of paper then what is called the mnemonic and then you put in some kind of safe or you play it on metal steels um we took i think that the more advanced solutions right now what for example what firebox is doing uh and other for example retail companies like xengo is leveraging mpc technology so through the technology you actually distribute the private key in a way there is no single point of failure right and um effectively the backup of it is much more streamlined because we for example on our side are able to back up all the information all the private key encrypted and also create the schemes in which you have an escrow another party right that can um hold part of the private key in the case that one of the parties fails so our crypto plus escrow really is the the answer and i'm sorry to cut you off i want to give you just 30 seconds where do you see the future where where are things the exciting stuff coming up you mentioned retail prior but anything else uh in in about 30 seconds we got to wrap up yeah i think it's the convergence of basically payments and d5 right so this is where things are going and you know we'll throw there also the nfts right so this entire integration of being able to pay in a native way over the internet have financial applications that are native to the internet and also the ability to tokenize content and tokenize um the the things that we are consuming on the internet i think that this is sort of 2022 2023 and i'm very excited about what's going to happen there michael it's been real fascinating a a great talk uh good luck to you you're on to a great track and uh with that i wish you a good day daniel back to you thank you so much thank you michael thank you charles it was a lovely discussion uh very futuristic but it's indeed a thing in the present not only in the future bfi and all this finance going digital is already a reality so thank you so much for sharing all your valuable insights from the industry and just for you to know as i saw there were a lot of still questions to be answered michael and also his team have a stan a virtual stand in the in the conference so you can reach out to the team and have your questions answered a pleasure see you around thank you so much thank you bye-bye [Music]