Ethereum & Fin. Instit.: Exploring the Landscape, Use Cases, & Obstacles by Angela Angelovska-Wilson

hi everyone I'm solid wheat product and metrica we build uh Telemetry and monitoring for protocols and we also work with financial institutions they use our risk management platform to build on top of blockchains super excited about the panel today we have a great lineup uh too many people to do fairness to their CV so I'll quickly introduce everyone let's start with uh I guess rich if you come up to the panel we have uh he's a global head of strategy for web3 at Google Cloud we have Angela um she's a co-founder of the LX law uh before that she was a general counsel and chief compliance officer at digital asset Holdings uh co-founder of Sila and IPI for fintech as well as Council for the chartering of Kraken Bank we have uh Benny pinkers from Goldman Sachs he's a BP BP there investing in digital assets Matt Homer uh founder of the Department of XYZ a former New York DFS and last but not least we have Taryn Schofield from he's the head of digital assets at 0.72. so we have a lot to cover and not too much time fortunately we have 35 minutes so let's start with uh quick you know that the the point of the panel today is to talk about financial institutions and Adoption of ethereum right so before we go into the questions I'll start with a couple of facts so the first fact is last month uh bny melon a large Bank shared a survey from their customers that found that 91 of custodian Bank clients are interested in investing in blockchain based tokenized products the same survey found that 86 percent of institutional players are adopting a Buy and Hold strategy so which suggests that they see crypto as a long-term play and 88 percent also said that crypto winter hasn't changed their plans uh in this space so with that you know there's clearly a large opportunity in the space so let's start by talking about the opportunities and before we dive into let me just quickly ask each one of you to say how did you get involved with crypto and web3 what was your aha moment if you had one and what are you personally uh excited about so we can start so back in 2014 I learned about crypto I know it's a little late in the game but that's when I got introduced to it and I was working at Quant fund so we were mainly looking at trading cryptocurrency just for unfortunately speculation but then being the CTO of that fund I dug deep into ethereum and I started learning about smart contracts and that was my aha moment that this was more than just a trade and I got big into um solidity and programming and took my career from tratt-fi into the crypto space hey everyone um so I've been a a regular twice and now I'm in the Venture Capital space but I got exposure to the space as a regulator first time the FDIC in 2013. um I bought some Bitcoin on coinbase see how it what it was like and it didn't go well so I bought on coinbase the one play I bought the one place you could spend Bitcoin then through coinbase was um an overstock.com so I got just enough to buy a pencil sharpener I bought the pencil sharpener and coinbase.

com coinbase deducted the amount from my account and then overstock.com said we have no record of your transaction so the money was gone and I never got that pencil sharpener I said okay I'm I'm not I'm gonna leave I'm not I'm gonna forget about this space for a while and then I I came back to the space again the second time I was a regulator more recently at nydfs where I sort of unintentionally became the primary regulator for a lot of the largest players in the space and my aha moment there was that um you know the process of Regulation and supervision is is really outdated and it relies on uh kind of you know anyway I won't get into it but like kind of some really like old school um techniques and I was excited about crypto because I was like this is an opportunity for us to regulate and supervise the space in a totally different way in a way that is actually much better for people um and that was kind of what got me excited so so I was even more late Comer mine was 2020. I grew up in tradvi clearly um and and was aware of Bitcoin and blockchain and ethereum uh for years but it wasn't really until 2020 that I dug in and that was a result of running my own fund for a little bit and kind of had blinders on and when those came down I looked around and saw a massive institutional adoption really starting in 2020 uh and started digging in and then there was that you know that TV movie montage where you're putting everything together um and and realize just the massive impact across payments Capital markets um supply chain Logistics there's just you know endless use cases and that's when I realized that I didn't want to stay on the buy set anymore I needed to be a part of this community so mine was 2012 and um sorry sorry yes um I'm usually never the one that is too quiet so I don't know what this is all about um so my first entry was 2012 Bitcoin Network I was a payments lawyer specialist and I saw it then I was like aha finally somebody built the financial networks that we needed for the internet to actually have a Global Financial system that works um not too dissimilar from Angela so I I really came across cryptocurrency I was on the other side of the Regulators I was a white collar criminal defense lawyer so I dealt with regulators and defended clients who were building businesses that were often highly regulated I actually came across crypto uh working on the FIFA World Cup uh corruption scheme which I think folks might be familiar with and it wasn't you know there's no crazy story about how people use Bitcoin to bribe folks for a World Cup broadcast rights but I did learn about it saw in some emails and I was like I got to figure what this thing is you know I want to know what this is and uh I got on a plane because I heard about ethereal that was happening in San Francisco and I realized like there's going to be Securities laws issues there's going to be all of these kind of financial regulatory issues that I saw at a global scale for World football kind of happening um at a micro level in this new community and so I flew out there I ended up representing a number of clients who had launched icos heard about the sec's involvement and then from there just kind of went down the rabbit hole more and more and then realized I didn't want to just kind of help people build things I actually wanted to build and become Hands-On so it's a bit of the blend of the legal in the in the business side which I think everyone here is now realizing there's a lot of value in that so awesome so we've talked about what each one of you is you know how you got involved what you're excited about let's talk about your institutions and the companies you work with what are you excited about in the space you know if we talk about financial institutions there's been a lot of talk around tokenization of assets um you know some momentum around private chains in the banking space um issuing stable coins in some cases what what are you excited about from your organization's point of view and if you want we can do a ping pong uh perfect um so so Google's mission is to organize the world's information and make it universally accessible and useful right um and and that's not with regard to any particular type of medium in other words if if information and value are being moved together sort of jointly on a blockchain we have a really unique opportunity to do what we did for sort of the early days of the internet you know if folks remember what it used to be like right you had to know what you were looking for if you if you found a website you'd get the URL or you'd have to figure it out and you sometimes we even before URLs you are just doing it by IP um and Google actually unlocked the value of the internet for the lay person right it created an opportunity for Mass adoption and so um what we're trying to do is that same thing right I think blockchain and cryptocurrency generally web 3 is kind of in that early phase where you have to really know what you're looking for there's a lot of sort of dead ends and there's a lot of uh you know sort of some products that offer something that's not true and all of that and so our our idea about what we want to do here is like surface that information and make it easy for people to access I think the other way that this also works is you know we are an engineering company at heart so like our customers like who we obsess about are the developers um the people that are building in this space and so you know if anyone's built or started a company you know the pain points around data indexing you know the pain points around running RPC nodes running archival nodes we just heard about some outages that happened this last week like it needs to be easier for people to build that kind of infrastructure so that they can focus on creating the next killer app so you know what we try to do is basically create the version of web 2 that we got where it was accessible to the the lay user to the average person but the only way we're going to get there is by empowering developers who are going to build those apps and allow them to focus on that as opposed to focusing on spending a bunch of time standing up nodes and and infrastructure so that's what we focus on primarily and then additionally we think about how we can weave web3 into the various product areas that Google has if you think about payments search play these are all platforms that ought to be sort of integrated with web3 in a way that's unique and so we spend a lot of time thinking about that for the company as well I think the most exciting part for me is all the markets that people are going to be building that don't exist today so a lot of financial institutions and I think this is just the normal journey of Discovery are going into the areas that are familiar in the financial systems but every time that we have had a technological innovation and disruption it has resulted in different innovations that have resulted in different markets that have resulted in different uses of financial information Financial connectivity how business is done and what is super exciting to me is to look at some of the financial institutions as well as the builders in the space thinking about how to bring in new markets into play versus just Reinventing kind of the same thing on a different technology uh Sarah Coleman there's a number of exciting things going on I think the one that I want to highlight and the one that most excites me is the Goldman Sachs digital asset platform or GS dap gsdap is uh an end-to-end infrastructure solution for tokenizing or issuing um digitally native financial instruments on blockchain so what does that mean that is we've had a number we've had a few deals actually catered recently as proof of concept but what that means is we look forward 5 10 or 15 years you start to Envision a world and see a world where all publicly traded uh financial instruments across equity and debt are tokenized and traded on chain so that means instant settlement no more t plus two or t plus one that creates you know greater Capital efficiency and fund flows but beyond public financial instruments we now have the opportunity to unlock all of the liquid assets right all private markets so private equity and your Capital private credit real estate these are these are asset classes that historically have only been really into wealthy individuals family offices institutions Sovereign wealth funds Pension funds and so start thinking about bringing those asset classes on chain they start to look more like publicly traded um Securities there's price Discovery there's greater transparency and there's access right so credit investors around the world will now have greater access to you know a share of a private company a share of a Convention Center you know what have you as as value flows more freely and so it's a massive unlock so I I think if you think about the evolution of of fintech um like the first part of that evolution is really what I'd call uh lipstick on a pig right it was just like creating like making things a little bit better for consumers but the underlying architecture was still horrible and broken and to me that's what's really the most exciting aspect of this space is the opportunity to build um new internet native infrastructure that will eventually replace all of the infrastructure that's already been built in financial services I think the the area I'm probably the most excited about right now is stable coins which I have no doubt will be the payment system of the future and I think it um is an area where we're really seeing you know the real world impact um particularly if you look at emerging market economies and kind of the benefits stable coins are bringing to to people in those countries so I think it's going to be absolutely massive and it's not just going to be dominated by one or two or three large players but you're going to see an entire ecosystem of uh stable coin companies yeah if you hear what all the other panelists have said there's there's all this disruption and originally all started for an individual but that also paralyzes into a business and an asset manager is a business that's going to be able to capitalize on those services like t0 settlement that was just mentioned um less friction in payments the state the stablecoin aspect that affects the treasury at an asset manager treasury is a very large function and all that is driven by systems that were never designed for 24x7 operation so what's really exciting me is that overhaul of these Legacy applications that would have had no impetus overall otherwise and bringing it into this next uh digital era awesome so we've talked about the potential let's now turn into the threats the obstacles what's preventing The Innovation from happening regulators is that us the music here or it's not here oh okay I thought it was coming from Oregon State um so I mean so you mentioned Regulators like sir I mean that's a big elephant in the room right we have I mean we have sec going after Kraken paxos we mentioned just just now stable coins so what you know from your regulatory point of view your your background as uh uh you know as a lawyer and what are Regulators trying to do what problem are they trying to solve and uh well I mean it's natural what you don't know is something that causes fear because you don't know what it can do and how you can do it and you don't really understand how it can hurt the things that you under you have um I have a really good friend of mine who I'm going to have to credit with this analogy um I guess it's a British thing um where there is a guy on a train in Britain and he's throwing toilet paper out the window like Non-Stop and this other guy yeah that's a British thing I guess so and a guy comes up and says you know why are you throwing toilet paper and the guy is like because I'm trying to protect us from all the elephants so there are no elephants he's like this is England there are no elephants precisely see it's working so that's kind of what you know some of the comments that we've seen from the financial Regulators are like the financial system was just fine when all this crypto crashed and we were all okay and I'm like yeah that's because there weren't any in the system because you haven't made it easy and accessible for financial institutions to actually work with crypto in a meaningful way and to incorporate it in the type of services that they are providing to their customers despite the fact that as you noted a lot of customers want it I mean look at this room look at the type of Institutions that are presented on this panel I think the train has left and no amount of toilet paper is going to save it any other comments I thought Goldman might want to talk about their Regulators but uh no I mean look I think it is a challenge I think though I mean let's be honest I mean it's been it's been in part a self-inflicted wound right and I think like um I think that the regulatory reaction um well I think yeah I think that um I don't agree with a lot of a lot of what's what's happened I think unfortunately a lot of what we're seeing actually is going to lead to more FTX scenarios in the future rather rather than fewer but I think that what we're seeing is rational behavior in the context of the incentives the incentives that Regulators face right so Regulators get they get zero credit when things go right but they get all the blame when things go wrong and so of course this is going to be sort of their posture I think my prediction on where things go is that over the next six 12 to 18 months we'll continue to see um regulatory actions mostly in the enforcement side it takes a while for Regulators in law enforcement to build cases and so you know we should expect that that will just continue continue to dribble out uh for a while um but that said I also think that you know we're at an interesting point where you know a lot of the Bad actors are being pushed out of the system a lot of the excess risk is being pushed out of the system and so we will see the pendulum swing we will see sort of an equal illegal equilibrium again and um I think that um you know anyway I'm I'm I so I'm very I think to Angela's point though like the space is not going away I think there's some Regulators who who think that it might um a lot of them but it won't they wish that it would I have to click their heels they wish they would go home and there would be no crypto but it's not going to happen I mean my advice to builders in this space is really to you know build as if you are or will be regulated at some point and just to keep moving forward but but to make that an assumption as you build your your company you probably need to have a GC or a CCO as one of your first um 10 employees but I think that you know trust is the big issue right so we talk about like a trustless environment um but you know I think we we also I mean we need to to me that's really a way of achieving trust actually right and like I think with Regulators um that yeah that just has to be earned I mean that's just whether that's good or bad I don't know but it has to be it has to be earned and that's what has to happen right um a couple of years so and let's turn to financial institutions themselves or institutions so from your perspective what are what are the barriers to adoption of you know Fuller blockchain Technologies within your institutions what are you you know what are you worried about uh that's preventing you from building on top of blockchains and you know we're at the East Denver so let's try to focus on permissionless chains if possible and you know you can talk about regulation but let's try to go beyond regulation what what's what's what's worrying you that's preventing you know the Space Room adopting all the things you you're talking about tokenization and all the all the all the potential I mean just maybe one thought on this which is you know a lot of the traditional Financial Services institutions are used to building things in a very particular way and they have a lot of rigor around the information and the systems that they deploy um they have they they can't just kind of launch things and fix it as it goes right I think a couple people can speak to that on this panel and so um a big part of how we kind of see ourselves as potentially an agent of change in this regard is by taking a lot of the tooling that works for probably 95 of the audience here but that five percent of the traditional financial institution or these large Enterprises who by the way already are large are already are heavily regulated um basically providing a service that they're used to getting institutional grade right things that you know can protect them in a compliance situation with respect to things like ofac and sanctions and AML and kyc and so um we know what that looks like in the traditional setting so what it is is kind of taking a lot of The Primitives of blockchain technology so nodes for example we launched a product called blockchain node engine it's basically an Enterprise great Enterprise grade node engine for ethereum so if you're a bank and you want to play on chain and have an RPC node you a dedicated node it can sit behind your firewall it can sit on your current infrastructure and it's going to behave a lot like the VMS that you would normally deploy and I think that's actually oftentimes it gets like lost in the discussion around where the barriers to entry are with you know regulation and education taking a lot of the oxygen out of the room but I also think that more companies need to be able to provide those solutions for those large Enterprises in order for those Enterprises to sort of jump in head first should I go you can go I mean Angela I know you work with a lot of financial institutions if you want to comment on it as well I mean I think one of the other things that financial institutions need is actually understanding of the risks and the risk engines so I think you know we've had products like genalysis and others that have kind of allowed financial institutions to be able to meet some of the regulatory requirements and I think Building Products that actually are you know answering their the needs of The Regulators to assess and understand the risks and really what matrica is doing are really unnecessary uh products to come into maturity so to speak so that financial institutions can start building and getting into a lot more things had first say that was a very nice metrica plug um but yeah I want to Echo that and say I think you know sitting inside one of these financial institutions now that first and foremost concern is AML kyc right I think within the traditional world we know who we're playing with I think within the blockchain based world we don't quite know yet and I think the AML kyc Solutions aren't at uh the level of Effectiveness that I think would instill confidence in our institutions and The Regulators we need to know who our counterparties are we need to know who we're operating with so I think that's the first big one um I think the second one is really uh a matter of Education right we were talking about this before and I think it's um people with International Services industry are busy and a lot of them you know that aren't involved in digital assets day to day when when I talk to them they're like oh you do digital assets you do crypto what are you doing right from their perspective the juice isn't worth the squeeze because they see you know potentially removing settlement from t plus two or t plus one to t plus zero but at the same time all they see is they're inundated with negative media headlines regulatory headwinds you know um and so I think for them they don't fully understand uh the massive disruptive potential of blockchain tech and so to them they say well that's that's not worth it right all of this headache just for marginal improvements um which we hear no it's not marginal improvements but I think that's the next big thing it's just education can I ask a question actually I I just like do you I mean not speaking about Goldman specifically but like I mean a lot of financial institutions like driven by customer Demand right it announced plans to enter the space is your sense that they're continuing forward like as is or they're kind of putting them on stasis and like waiting to see or like what um let me just like think about the market more in aggregate like what do you see yeah I would say right now we are not taking any steps back but we're not necessarily taking any massive steps forward either uh this is certainly a time to take inventory and I think to the conversation we're having you know regulatory Clarity will be really helpful in unlocking the kind of Cambrian explosion of innovation um but we're a commercial institution so we want to be helpful wherever we can with clients but around some of these hot button issues where there's not Clarity around certain things we're pausing and we're communicating that to clients too I would just add one thing sort of on the regulatory side and getting them comfortable Regulators are of course going to want to see a control framework so they're going to want to see you say these are my these are the inherent risks associated with this activity here are the controls I'm going to put in place and then here's the residual risk right and with those controls are very important and um I think that ecosystem of providers is still being built out I mean I think metrica for example plays a really important role I see a lot from alteria back there there are a lot of players that are emerging to help institutions build that control framework to manage the risk to get Regulators comfortable yeah just building off of that financial institutions manage risk at the end of the day especially on the buy side they run a book the book is warehousing risk in one state way shape or form and if you strip out regulation you strip out even portfolio risk you still end up with operational and Technical risk so as we standardize as we mature that's that's what's going to help and it's also going to be getting people that come from this community into these organizations so like a good example is like erc4337 that just came out um that concept was something that I was pitching in a closed door room and I it didn't really go over well but then once it became a formal standard even though it's a standard that nobody really is like looking at on a detailed basis it became much more palatable so you know that that's what it's going to take to get financial institutions and it's more people from this type of audience in these firms awesome so we've talked about the opportunity we've talked about the risk let's talk about the future so what do we need as an industry to do to move this forward what do we need to you know get more institutional adoption of permissionless blockchains like ethereum do we need standards do we need you know to abstract this from the end user do we need um self-regulation what are your thoughts around this I mean you need a killer app right like that's that's actually what needs to happen I think look I used to be a Securities lawyer and I have my own views about this but there is a lot of oxygen taken up about how to win over Regulators with principled arguments and like generally we're not seeing that work very well right we've had about two years of throwing stuff against the wall it's been okay but if you think about like some of the best products that have come out that were really disruptive not just technologically but also legally um like I think I think of uber right like uber didn't win because their principled arguments about why they were a transportation Network company and not a taxi cab was listened to by The Regulators they won because so many people wanted to use the app that it became politically untenable to go against it right I mean if you there was I was living in Hoboken at the time Hoboken city council banned Uber and people were absolutely up in arms and they repealed the ban and it had nothing to do with like all the policy arguments that fell on deaf ears for two or three years before that like became sort of they started to resonate and so I think if you build a killer app um that's going to have a lot of power not just in terms of bringing Mass adoption and bringing a billion users and new developers and all of that but it's going to go a long way with the policy stakeholders and sort of convincing them that there is like there's Merit to this technology into preserving it and making the US you know sort of an incubator for it which is what Brian Armstrong was talking about just yesterday in his op-ed so um I think that that needs to be the Focus right the user Journey should stop being I go to coinbase and I buy an asset and then I get a wallet and why do I do these things like I I can't pay anything I can't like buy a car with it right now like there's no killer app that I can use there's not a Google Maps that's on web3 so like we need to change the user Journey where people go to coinbase to access the asset they get the wallet because they want something that the wallet enables as opposed to the wallet being the be all end all or the asset itself being the blr end-all so I think that's what the space really needs and if you provide that it solves a lot of the major challenges that we see with with policy stakeholders and consumers I mean I think the going back to before so doing you know the Golden Rule still applies build it the way that you want it and treat everybody the way that you want to be treated and so I think just focus on you know the customer and what the community and what you're trying to accomplish and build is what's really needed in order for it to take off and build the killer app and so Joseph I may interrupt so I agree with that on the consumer side but if we talk about financial institutions You could argue that there are some killer apps like you could do you know t plus zero you can do like a lot of things like cross-border payments much more easily what's preventing you know how can we move past that what can we what do we need for institutions to adopt that I mean if we assume that one of those is a killer app or are you implying that none of those uh would be I think it's again the development of new markets that it's necessary in order for all of that to take off because if you're just going to deal with their current markets and these small profit margins or the profit margins that they're used to there's no incentive to change it but then if you look at the just just to like make it more interesting if you look at the data people want it right like the we started the panel with some facts people and institutions are interested in it right so it's like on a chicken and egg problem they're wanting it but then institutions are saying we can offer it and then it becomes a self-fulfilling prophecy last time I checked when you know people didn't like these institutions didn't really want to offer online banking because it was really expensive and very unsecure so I'm just gonna say I don't know about that argument I was just going to give the boring answer of Regulation I mean I I I I I realized the killer app is a great angle and and I realized that that would ultimately push the government into something but looks again sitting within one of these financial institutions we are SEC regulated we are systemically important financial institution it's hard to really operate without a killer app unless there's you know rules of the road from the SEC so then you're right we're kind of stuck between being commercial and clients asking us to be helpful and the SEC is saying can't do that no I mean I I just think for me it all goes back to trust like if you think about the history of financial services from the beginning of time the trusted ecosystems are the ecosystems that persist and survive and so how do you achieve trust right you can achieve trust through transparency you achieve trust through reliability like I think we have to really go to First principles everyone it's everyone's obligation in the space if you're a company like it should be something you're thinking about on a daily basis like how do we achieve trust for the people in our ecosystem um and you know I mean like it's ever it's cyber right I mean think about um there's there's like a lot there and it's going to be different for every company but I think that that is the one thing that has to be solved there's again I think it's the people bringing the people into Trad Phi who come from crypto backgrounds the more we get in the more mainstream it becomes and it's no different than how you know um a retail company wasn't an internet company when it first started it was a retail company then the internet happened and then eventually you go to Walmart and there's a section Walmart that looks similar to Google so that's what we need in in the financial services industry awesome so according to this clock we have a minute and a half left we can take one question anyone have one burning question there you go so post ethereum Verge right um MAV validators have there was actually a report that are choosing to be ofac compliant that percentage was about 79 November more recently I believe in February it's about 50 of and maybe validators choosing to be ovac compliant and I see this as want an opportunity in prematureless networks for financial institutions or other concerns from government but then when you see that percentages change I see that as an issue as well so just a comment on like permissionless networks in financial institutions well I mean it this kind of goes to the tooling point that I made really early on when we first started talking about what we do which is like uh right now like the community relies on flashbots and Mev booths to kind of do some them but but there really ought to be you know more sophisticated tooling I know we were talking about the matrica guys about this more sophisticated tooling for people to basically vote with their feet right the benefit of these permissionless networks is that if someone wants to you know enforce of fat compliance across the nodes that they run um you know they should have the optionality to do that and uh if people don't well they should have be free to choose to do that as well but but I do see that there are companies that want to do impose that compliance or maybe not but they actually the barrier for them is the technology Gap and so I think like building developer tooling that solves some of those issues at every part of the stack is actually going to help I think create Clarity there where instead of just wondering like why is this number moving up and down are people actually voting with their fee do we have a number of validators offline um is there a an uneven distribution of tech technological access right which I think is a big issue uh I think the goal would be create sort of an equal playing field so that technology is not the barrier to entry and then we can actually have discussions about like from a policy perspective from you know from a proportionality perspective how the ecosystem should respond so again I think it goes back to that tooling and what people can do are unable to do and then maybe that being a barrier to entry in and of itself for them to make a you know an informed decision thank you so much for your time thank you for joining us foreign