What do Institutions Look for in the Crypto Industry? - TOKEN2049 London

what's going on everybody everyone hear me all right awesome stuff how cool is this conference right we're all together again which is fantastic should we sit yeah we'll sit all right so great having everyone here i am a brank dancer as well but um i have to make a confession before we start uh i actually used to be a banker for 15 years a greedy banker and uh i know and i used to work in new york city and chicago and the city of london so i've got some questions today about my former employers institutions and how they're using companies like nexo to really get into this space and being at a bank they're very conservative they're very slow they've just heard about bitcoin this year um but they do want to be involved and they've got a lot of capital and it's really important that we bring them into this space and so i wanted to start off by asking you what are the kind of questions and challenges you get from institutions when they come to nexo and what are the solutions that you can provide to them and what are some of the mistakes they shouldn't make when they're first coming into the space thanks brian this is a a great question uh obviously and hi everybody you know there's a lot of faces here that we know a a lot of our customers and friends so i'm very happy to be here in london and before i i answer your question i also have a confession to make i've been a also a banker for 20 years i'm a few years older than brian obviously you see how fit he is you know so you know it's uh you know this industry is obviously not too benevolent on us but um yeah i mean you know mine's my institutional background you know basically is no different uh uh you know in traditional markets and and what we're seeing here in the crypto space you know institutions are institutions everywhere um institutions are there to take risks to deploy capital and earn uh um you know earn uh returns um in the crypto space they do the same thing you know but they're facing a lot more challenges that they're seeing in traditional markets so it's one thing obviously for them to accept market risks credit risks even counterparty risks you know to you know to a large extent but uh some of the operational risks and challenges you know that we still have in the in the crypto space unfortunately makes it very difficult for them to make a jump and uh it's it's one thing you know for you know a number of us to say hey i have a small portfolio i'm going to do some yield farming you know for example and i know that i'm running a little bit of a risk you know for a hacker you know or uh you know or a hat or or a scammer you know to come and you know steal my funds you know and that's okay you know because i'll probably you know make it up on another trade you know that i have institutions don't play that game you know i'm sure you know this very well you know and this is why you know many of them are saying until we know that there is a level playing field you know and we can come in and all these uh operational uh you know irregularities and risks are you know cleared up we're not gonna make the jump at the same time you know obviously we're seeing you know we i mean how many of you you know heard you know for the first time you know what about a year a year and a half about micro strategy you know now they own what close to 120 000 bitcoin you know one of the you know largest institutional owners of bitcoin i mean this you know for me just you know came you know overnight you know uh you know coinbase is making an announcement uh that um uh you know they will deploy a large part of their balance sheet in in crypto uh 17 billion in vc money flowed into into the crypto space just during the first nine months of this year that's incredible i mean we live in incredible times and you mentioned michael saylor how many people are a big fan of michael saylor or microstrategy right five billion dollars on his public balance sheet as a company we had him on the show a couple weeks ago and i mean this guy says you should sell your house and buy crypto it's an extreme thing but he is all in on crypto he calls it digital property he did one of the best explanations ever and again we never saw a public company that is regulated by the sec going all the way into bitcoin we saw later elon musk follow him with a million billion and a half in tesla those are corporations those are in america i'm wondering what do you see in europe from corporations or is it hedge funds or are banks actually ready or are they still a little bit behind what kind of institutions are you seeing that want to actually pull the trigger you know brian one of the most interesting aspects of what we see on on different continents is that somehow you know they mirror almost i you know in an identical matter what what we used to see in traditional finance um europe historically and culturally is much more conservative you know people in europe like current yield you know they like savings products you know they don't like taking risks you know that much let's say equities you know for example in traditional markets still comprise you know let's say a third but surely less than half you know of their portfolios it's exactly the opposite at the other side of the pond in the u.s you know where obviously investors have been traditionally much more aggressive and uh you know pursuing let's say uh more alpha from uh from equities so it's very similar here you know when institutions come to nexo traditionally in europe we have these you know asset managers you know we've been approached by a couple of pension funds very early uh you know we're talking about some fund administrators and for the most part they're interested in our uh earn interest program how many of you have you know have tried it know about it it's actually you know one of the you know highest interest rates paid in the market and it's you know we we like to call it internally money market on steroids you know because we we pay a a daily compounding interest rate you know so people you know store their crypto their stable coins their fiat with us um and we without doing anything else you know just storing them on our platform you know not even a single additional button touched we start uh and we start paying daily compounding interest rate you know which is about eight percent uh per year at the moment um at the same time as i said you know in other geographies institutions come to us and they say yield is great you know we'll take advantage of it to a certain extent but what about trading you know what are your trading capabilities and this is something that we distorted becoming a recurring theme about a year and a half ago and we committed a lot of resources and a lot of strategy uh development in that direction so one thing you know that i would like to share to the audience today you know users use this opportunity this conversation with you is to lift the veil a little bit uh you know about something that's coming up at the end of this month at nexo and that's the availing of our prime brokerage platform which is exactly what most of the institutions want it's a combination of uh capabilities and services you know we will have um you know advanced uh order placement system you know we're connected to close to 20 exchanges uh you know so we get smart order routing order book aggregation you know no longer institutions need to buy a little bit of bitcoin on binance a little bit of bitcoin on kraken you know and maintain uh different uh balances at various exchanges one-stop shop at nexo you know our system just aggregates the book and basically achieves perfect and most efficient execution at it exchange at the same time another very very important area for institutions is margin how many of you know have struggled or have you know had concerns about using margin on some of the exchanges where you know let's say you know this margin is priced at you know every eight hours no visibility you know for the next you know let's say a few days few a few weeks few months and that's a problem for institutions you know if you're if you're a retail speculator and you want to just jump in and out of a position in the course of a couple of days you know the perp funding is fine you know but if you're an institution that wants to know what their funding rate will be for the next three six months you know a year you know even a couple of years they come to us and obtain margin at a fixed rate you know which is transparent it is identical you know day after day and that's something we do coupled with institutional custody and insurance uh you know for you know close to a billion dollars uh you know with established custodians it's again you know a one-stop institutional uh uh uh stop shop you know for all the institutions taking advantage of these opportunities yeah i had a question for you about just different platforms and different models and so uh we recently got to speak with alex mashinsky and celsius who just went to stage one and and they have a platform like yours that does kyc and alm and it's a bit more centralized versus what say ave and comp are doing you know we've had stanley in the show and robert on the show they're doing this kind of decentralized play alex believed that by doing the kyc and alm now it'll make it easier to bring institutions in which is going to bring all the liquidity in i'm wondering if you guys are thinking a similar thing with nexo because you have that and you've been doing that since 2017 2018 do you think that's going to help you bring in the big balance sheets of these institutions uh absolutely by all means you know kyc and aml super important for us um uh i i to be honest with you i i cannot address and know exactly know what the competition is doing you know besides the point on whether they have been doing a lot of the things that we're doing and also we of course you know like to be pioneers and you know we enjoy when uh some of the other players are following uh shoot with us uh but uh you know the regulatory environment is very complex you know we know this you know we are trying to do our best but sometimes you know we are trying to find the switch in complete darkness you know we we believe that we know where the switch is sometimes it's there sometimes it isn't uh for this particular reason we maintain very active and very productive dialogue with um you know regulators and watchdogs around the world we welcome the dialogue we welcome their inquiries you know we we also try to tell them that we're here to work with them and sort of you know bring the same type of institutional and regulatory logic from the you know traditional finance space into crypto um but uh if there are no uh concrete and written rules as i said you know sometimes it's just sort of you know we're basing our uh um you know common sense and and logic when when we do these things um but uh one thing at nexo is that we don't compromise with kyc and aml for one very important reason obviously we're not interested in how we can provide sort of the uh you know most efficient you know uh type of services without any boundaries today we want to we want to build an infrastructure that can provide it to anybody you know whether you're a you know small times you know retail investor and speculator to the hedge funds and the investment banks you know it should be the same exact structure that you know works equally well and ensures uh safety of funds of course no commingling with questionable assets you know which again it's just a short runway you know it's not something you know that we're interested in uh we have been speaking with a lot of friends and colleagues in the defy space and trying to work with them and find out how this kind of sort of institutional thought process and advancements can be made in the defy space because obviously you know if we connect um you know an aggregator you know a a decentralized exchange from the defy space we want to make sure that the money that comes to nexo is as clean as the money that's already on the platform and we're not going to run into some unnecessary complications in the future yeah and this is a really important point uh again stanley uh we sat down with just a couple weeks ago i mean he's got 23 billion locked in his platform but it's dex and we all love dexes because we love decentralized finance but the problem is when the institutions come in they can't tell where this money's coming from so it might stop the adoption also when it comes to regulation everybody wants more clarity does everybody here like gary gensler or do we not like gary gensler of the sec we like him we don't like him you know gary's actually yeah boo you know gary's actually a former mit professor where i went to school and he was teaching his exact same technology back in 2018 at the sloan school of management before he became the sec regulator and he basically at that time said bitcoin and ethereum were not securities now he threatens coinbase and brian armstrong when they offer a lending product and said that might be a security alex mashinsky i think is having problems in new jersey i think everybody who just wants a little bit more clarity also with stable coins and what's happening in the future i think it's going to help us all but right now it's it's a bit ambiguous and a little frustrating and probably hard for institutions do you get any signals from people in europe or for you are you just thinking let's keep the kyc let's focus on what our business is and just try to provide end value to the user or do you have active conversations with regulators or is it this kind of relationship we see with brian and gary where they they communicate over twitter they they won't even seem to get in the same room it's this very strange relationship i guess um you named it uh we are very concerned and very diligent about uh this aspect of our business um i mean this is actually sort of a a a a wider conversation a conversation that that we've had with you know many you know crypto currency sector participants and you know we're saying that when you're a c5 platform like nexo you know we obviously do a lot of direct interaction with the customers we do a lot of handholding you know obviously kycna ml involves a lot of um you know manual components uh you know manual components as well uh but yes if you want to be uh a reliable counterparty and partner to not just institutions i mean you know corporations you know we do business with a lot of you know corporate treasuries uh foundations uh small hedge funds you know a couple of people you know running some complex algo trading uh strategies you know from their homes but all of them want the same thing they want reliability they want to make sure that when they do business with you you're going to deliver the best in-class uh trade execution to them you're going to give them margin you know that they can rely on today tomorrow a week from now um yeah i mean you mentioned you know some of the problems you know that uh you know some of uh uh other companies in the space have run into you know who knows you know maybe they're not spending enough time and and resources as we do on working with uh with regulators but but again i need to reiterate you know that in these conversations we can only be as active as we are allowed to be we can only offer you know to work you know and to provide help and resources you know so that we are all sort of swimming in the same direction um in in some instances you named it again i mean is it a security is it a commodity this unfortunately isn't a part of the conversation you know that we can that we can be in you know so there are certain things you know that happen you know around and you know and and above us and and when these uh conversations clear up and uh a conclusion is reached what we're doing at the moment is ensuring that we will be ready for whatever the outcome and whoever the regulator will be you know we're already we have opened you know some early conversations we have offered help you know we can share with them immediately our kyc aml procedures you know the way we ensure that there is you know no co-mingling with questionable assets and you know that's you know that's the best we can do and one final aspect you know i would like to add is you know this is something you know that everybody you know including myself you know i'm so in i mean i'm so happy you know so uh enthusiastic about the um uh innovation that's coming from the d5 field uh you know we're we're looking at multiple projects we're collaborating with some of them we're investing uh in a number of them because we like the people and the technology but at the same time in today's day and age in today's modern financial system unless you have like we do uh an army of regulatory and compliance people in-house you know probably a team of you know 20 plus people you cannot ensure um you know that you will be aligned with what at the moment is sort of in the stage of development on the regulatory front and what we expect and believe it will look like um a few months from now a couple of years from now taking for example what's already in the traditional finance space yeah and this is the problem with regulation i mean all the old school people in here we welcome when we see things like unit swap and compound d5 summer of 2020 it's like wow we've got coders we got programmers they don't need balance sheets they don't need klm they don't need all those things but then on the flip side is to take this to the next level we need the institutions we need all that liquidity and so there you have to almost embrace all of those other issues when it comes to that front end and embrace some type of c phi and look at maybe trad five versus d phi and versus c phi and i think that's what we're trying to do to take this to the next level um and again there's a great place for a uniswap in this space and a compound in this space and there's a great place for an exo in this space to try to bridge that gap but um i've been on both sides of feeling resistance on that sometimes when i can't plug in with via my metamask wallet i get angry and then sometimes when i actually see that i've got something that's centralized that has a customer service department or reply to an email i see the value there and i think going forward as we change to find a way to embrace both and i guess that's what you're doing trying to get these institutions in this is exactly right um and i fully agree with what you said uh a minute ago we have these conversations on a daily basis um you know especially when we speak with our community on one end and also with a lot of partners on the other end you know because for the most part nexo is interested in supporting a lot of projects collaborating with a lot of projects investing uh in a lot of projects but we always we always must have the strategic benefit angle you know how does this partnership or this investment how does that enrich the overall next week experience it's super important for us and this is one of the most important assessment points for us um but you're right you know it's you know of course there's much to be said you know still about you know that you you need to be you know almost a technological genius you know to operate metamask and you know be confident that you're not gonna you know make a mistake and and then you know obviously i'd be sorry for you know funds that you have lost uh but uh um you know beyond the technological aspect uh there is obviously also the um uh adoption aspect uh and uh it's great again you know we love it you know we like the innovation you know some of the i mean i'm meeting here at the conference and just in general we're being approached by super super nice and smart teams you know a few people in various geographies around the world this is the beauty of the blockchain space you know that you can talk to people you know in countries you know where normally in traditional finance you would have probably never thought interacting and there's a you know smart people you know two three five you know people's team are doing some amazing things you know and you know some of the names you know that you already mentioned you know we we're we are you know very fascinated by their success but for the most part what are we seeing you know we're seeing a new platform a new protocol a new token you know that you know goes up you know 20 30 50 100 x great you know great for the uh you know for the founders you know great for the early adopters institutions almost never play you know you know participate in this they're obviously late comers and you know a lot of the for us you know brian i mean you you you you hit it on the nose you know there we try to be the sort of middleman the conduit between these two spaces you know to identify these technologies and these breakthroughs early on and try to bring them into the cfi you know what we believe you know will be the core of the traditional finance in the crypto space later on because our question always you know when we work with partners is not how we can bring let's say 10 000 users 100 000 users 500 000 users to their protocol we want to bring over you know our you know currently 3 million users or nexus platforms you know and potentially in the future you know tens and hundreds of millions of users because otherwise you know uh again the the outcome for the founders and the early adopters is great but one hundred thousand users around the world don't build a market yeah and that's a good final point to make it's all about scale i think uh it's katherine wood of arkhanvest is predicting you know a billion users of bitcoin by 2025 so is scaramucci and a bunch of the others how do you onboard that many people you have to be thinking about how you do that scale and do that also and comply at the same time last question the the etf the bitcoin exchange traded future is going to change the game potentially when do you think it will happen and and how will it affect your business and all of us in the markets well i'm uh on the same page with the optimism during this week you know that potentially it can happen in the next couple of weeks i know there have been some bets uh and i think you know the latest probability i saw was like close to 75 that it'll be the next couple of weeks of course you know we need to be specific here we're talking about a btc uh uh exchange traded fund which will be based on futures and again you know this isn't you know uh an abnormality of some sort you know in traditional finance a lot of etfs you know start you know being based on derivatives and then they move you know to the spot market so um it will be obviously a an immense success a great victory if we start there uh you know with uh with the futures uh btc uh etf and take it from there i mean i i'm i'm sure you know that there isn't a single person in this room you know that doesn't know what an etf is in traditional finance and hasn't seen one for example in the s p 500 on gold on asia you know on on multiple geographies industries and uh uh you know asset classes you know so i truly believe you know that this is absolutely the future there is still um you know some progress to be made you know by all means and uh i cannot say that i don't understand why the regulators are taking the slow route and making sure that everything is uh is uh structured well because everybody in this room you know as soon as there is a an etf on btc there will be 50 new applications for the next ttf and those be 100 applications for uneth uh etf you know and everything else you know and you know an exo etf you know you know we'll be interested in all there as well so uh the regulators need to make things right and build a trampoline you know on which you know all of us you know can jump and you know jump really really high so you know we're keeping our fingers crossed you know if it's not in the next couple of weeks you know hopefully in the next four weeks you know by the end of the year but once it's there the the i believe you know the mainstream adoption will be huge yeah no we're all waiting for that to happen it's going to change the market and i'll just maybe say on a final note you know at a conference like this it's easy to get caught up in some of the amazing things happening from gaming to the nfts to all the exciting new coins but this defy stuff if you're not into it look at it because this is how we tap into hundreds of billions of dollars that's actually going to fund all the other things going on here and so it might seem like a bunch of ex-bankers talking about weird things like margins and stuff but it actually is the capital base that's going to make everything go to pluto which is what i think everybody here wants and so i just want to say thank you so much for what you guys are doing at nexo and thanks for everybody for being here and watching us and um yeah enjoy the rest of the conference thank you big round of applause [Applause]