BBW22 - Day 1 - Custody & Ownership of Digital Assets

[Music] so hello and welcome to the last panel of the day um it's going to be a tough act to follow and hopefully we can keep you interested until the end because I know there's some beverages to come as Ian mentioned my name is Marissa McDonald and I know that he gave a wonderful overview of all our panelists so we can actually probably just jump right into the conversation um so today we're going to be talking about custody of digital assets we're going to talk about how custody is regulated and supervised we'll talk about security and risk considerations and then we'll also talk about the importance of making a thoughtful choice on type of custody so to start us off just kind of starting with the basics Darren to lay the groundwork what are the different ways that an asset owner can custody their digital assets and why is that choice of how one custody is so important great question yeah so I guess I would start by saying that there is a choice of custody when you talk about digital assets right and traditional Finance up until 2012 there was no choice if you had money assets Securities Etc they would be held by a QC qualified custodian and that was the one and only way that you could operate in terms of storing your wealth now with digital assets there's a choice you can select whether to place your crypto with a custodian if you leave your coins on an exchange I guess you're sort of doing that they're not a qualified custodian as we're finding but that's one thing you can do and you can also choose to have your own self-custody wallet where you can store your assets and handle them yourself or you can even have a hybrid environment where you can work with a uh a multi-signature wallet environment and have someone else help you that's called collaborative custody so there's this array of new new choices with custody and none of them are wrong or right there's just different applications for all of them so just pausing for a second on the idea of self some benefits or risk to self-custody so um maybe I'll jump in there um one of the things that we kind of look at closely is when you talk about costly I think oftentimes people kind of kind of confuse when we talk about ownership right so we had we had kind of an interesting disclosure with coinbase for example back in August this year that was me about what actually custody means and what would happen in for example in the event of an insolvency and I think one of the things that we look at if you think of it logically custody you know what are you looking at self-hosted or on an exchange I think looking at shoulder lens of actually what that means in terms of your entitlements as maybe legal ownership for example is actually risk number one and what may occur in terms of ownership I think the other things that we look at is is things like um security uh concerns I mean I think there's a reason why people choose to sell custody of their assets and keep it off chain and we're also seeing kind of things like I suppose the Natural Evolution of the ecosystem where originally exchanges were maybe the hot spot for like breaches and things like that and then you're seeing now like recent exchanges or you know things like Bridges being exposed with either smart contracts so I think I look at it and through the lens of um really people understanding the choices that they're making right I think the other the other thing that we look at is which happened early on was there was a lot of exchanges that perhaps were launched by questionable actors themselves right so you had things like Rod poles and it's interesting so a lot of us have no problem opening an account with JP Morgan or whatever because we know they're a regulated entity but oftentimes we we kind of have no problem putting a thousand dollars let's say in an exchange or a D5 that we literally know nothing about um and oftentimes you kind of question about that it needs to be so there's there's a healthy level of kind of self-responsibility I think people need to do and look at where they put their money and what they need to do and then understand the choices and the risk that they bring right okay um so Paul you just mentioned um you were talking about traditional Finance Darren I think you had used the term you were talking about centralized exchanges so just kind of laying down just definitions wise um Tom could you just walk us through some of the differences between traditional Finance centralized exchanges and then decentralized Finance sure so I just as a as a way of background I came at this from from traditional Finance I spent 15 plus years in the currency trading World very much in the traditional Finance space um and in in traditional Finance you know the great thing is you have security uh if you're a consumer you go open a bank account if that bank goes under you still have insurance up to 250 000 under the fpsc if you put your money with Fidelity you've also got the sipc that ensures your money so you get lots of security sometimes you don't get convenience in traditional Finance if the bank is closed on a weekend you can't go in there thinking the rules of internet banking it's different but traditionally uh this space was it was very much of a regulated secure space you know my first time to play around in Bitcoin you realize very quickly if you lose your password you lose your coin so you're thinking well hang on a second but I think as as you've seen D5 and C5 evolved um there's a few things here one is code is law so you agree to is to you know your coins have your have a password you've got to hold on to those passwords um you know I think what we saw this past year as crypto came down a little bit um most of the The collateralized Lending done through defy it seemed to be an orderly sell-off um even though you had a lot of stop-loss selling it worked okay you if you were lending in those spaces you got your money back CPA was interesting this year um if you look at groups like Celsius that were doing a lot of lending uh in a way that was sort of off balance sheet or not in a regulated way um when it push came to shove some of those assets really could be sold in time and you created a lot of losses and unfortunately there were some some companies that went down so I think you're seeing some awareness that CFI does have some gaps but but I think what we're seeing increasingly is that you've you've got to be Barbed aware you've got to understand what you're doing in some cases some of the D5 groups uh what we saw with Luna and and having a situation where the setup just was not well thought out or the code wasn't right and you've had some big hiccups there as well but you know from my perspective you know seeing what's happening in in traditional the transition from traditional Finance to the Deep Inc file space I think we're getting better we're getting smarter and I'll say one more comment um about previous startup we were investors in Marketplace lending so we were buying loans issued by the likes of Lending Club and as we grew our fund uh our investors said well you need to have a custodian so he said sure we'll get a custodian and so our custodian said we'll hold the electronic copies of your loans oh well hang on a second what exactly does that mean but the reality was I don't think that the digital world has caught up to many areas of traditional finance and I think as we really when we get there blockchain will give you that proof of concept we'll give you that proof of ownership and I think that a lot of the these transitions are still working their way through the system great um so assuming you have decided to custody with a custodian versus a self-custody situation what are some of the chief considerations when making that choice of custodian what are some of the things you think of and this is for you this Tom this is also for for Paul and Darren to weigh in as well sure I mean I think that um depending what asset you have but the custodian in traditional terms highly regulated um they held your assets safety they abided by the rules they sent you a quarterly statement uh separate from your your fund manager uh and you know as you look to transition to the digital world I think we want convenience we want Simplicity we want security but what we want is a more modern way of doing this I think but yeah yeah uh yeah I mean there's different applications for each I mean a few about back when Celsius existed it was very compelling to suddenly have um a new interest rate earning option right there was an Innovative company that would pay you interest on stable coins and other cryptos and so by definition you had to put those assets in custody and you the customer or the consumer were weighing the risks of okay I'm gonna post my money here but get a yield I'm gonna weigh that risk and of course I lost on that risk and anybody else did too but there are other uh Opera there are other sort of uh times when you don't need custody like for example if you just have a long-term hodling position I mean that's just there's no need there's no need for custody and I think that's what uh you know is Harkens back to the prior couple of panels that we're discussing like you know 1940 and 1933 you know SEC regs and uh there there was a need then with people just walking around waving hundred dollar bills saying where do I put this I don't have a place to put this well we don't have that problem anymore I have my Bitcoins and I have them in my wallet so I don't have that acute need for somebody to put them into their custody so that that would not be a case when you would need that service but and then something in the middle might be um you know if you were another service that's emerging in our in our industry is just lending so if if you want to post some crypto as collateral and receive a USD loan of course that is another custodian situation and again you have to weigh the risks of if that business is going to be around when you go to claim your collateral there's just not enough um there's not enough confidence of which players are are putting assets on their own balance sheet as Tom mentioned versus uh segregating them putting them in cold storage or on-chain wallets it's just very murky like as a consumer you just don't know what you're getting when you ship your Bitcoin up to XYZ you know exchange or service you don't there's not a cognizance of the risks involved and I think I think we need to work on that yeah and I think just add to that I mean if you think about what was the purpose for exchanges in the first place I think it was the ease of use for people to be able to it wouldn't necessarily be familiar with self-hosted wallets to be able to interact and purchase these Assets in a simple and more intuitive way I think as the ecosystem evolves right so exchanges serve the purpose um but I think there's still some way to go to kind of building out the infrastructure that we're kind of used of in the traditional Financial ecosystem I mean Tom mentioned there earlier but and there's actually if you think of it logically there's some very simple solutions to this right so we have we have blockchain the assets are on the blockchain they can be publicly verified a lot of cases they're probably so why isn't that information actually in a lot of cases accessible and known to the public right why are we why you know when you rely on Independent custodians the publish quality financials this is the stuff that actually could should be readily at hand and available to everyone so there's there's some really interesting ecosystem or I call it infrastructural pieces that can be plugged in I think quite simply to actually solve and I think what you're seeing now in especially from the industry and I think proven from Folks up here you're starting to see you know no disrespect but I think the the adoption of blockchain from Beyond the people that really have you know let's say that the strong engineering are completely science background and see this as a cool thing into the real-time industry where people are seeing some very real problems we we understand you know we're in this like Market reset at the moment but I think everyone that really understands the next wave of growth which requires to track the institutional money and all these other things is going to require these kind of plugs to be filled right so um and that's what you're you're going to start seeing happening great um so I know two panels before there was a conversation related to the regulatory environment and getting those compliance policies and procedures in place which is one of my favorite topics to talk about um but just kind of thinking through custodians and in this space who are who are The Regulators that are watching over providing the supervision for your regulated somebody said it earlier a patchwork quilt of just bizarre state federal stuff and you know I I think literally anybody can just raise their hand get a state money transmitter license and technically you can custody crypto I believe it's that easy so it's probably not a rigorous enough uh standard at this point it does require you to have a BSA AML program so okay yeah Keeps Us in the job yeah and so you know then you run into stuff like Celsius occurred right and sure they registered with nydfs and you know they had a you know bit license and everything so New York was looking at them but they weren't looking at them through the lens of you're a custodian do you have proper amounts of collateral do you have a third party uh auditor uh and is that report constantly available every 30 days do you um post your uh post your uh collateral findings these things just weren't in place and uh you know so more to Marissa's question they're uh there currently is no I don't believe it's like specific track for regs related to crypto custodians it's very amorphous right now I think yeah yeah I think I think it's um I I you know we were talking about it earlier one of the things just decision like you talk you think about the regulatory landscape and I think the implications it has as an entrepreneur when you're looking at the space you're almost making decisions based on how you can get the pet at least resistance right um and I think that's that's the parital varsity that stifens innovation um you know when you see what's happened in other Industries like let's say the Cannabis industry and everything I mean this requires Federal Direction and I think I I suppose even though I think we got still somewhere to go you're definitely seeing kind of more velocity and movement in terms of action coming out of out of DC you know you say that the Biden executive order um you had the The Gila brand Loomis called bipartisan Builder was sponsored which not sure if anyone had read it but I think for the first time I had actually seen a kind of a clear framework that defined very clear definition of terms in terms of you know how how they Define digital assets and virtual assets right down to actually how they believe um different players in the space be it custodians or Brokers should actually register um and you know while they kind of favored the Canadian approach with the cftc you know that I think that I think turf wars has has some legs yet now it's going to play out um but I think it's the start it's the start we need but I suppose the other thing that I would say just my experience working in financial services there is a real opportunity I think you know there's a reason why things work in the traditional space and one of the things we're seeing right you know people now moving from tread space into the spaces there's things that have been proven that work in the industry in these areas and it's a matter of just now transforming them over and adapting them into the system space I mean fundamentally blockchain is an enabler of an exchange of value right so there's there's no reason I talk I talk about the infrastructure elements but the application of you tried and trusted methods will start start getting into this space and really there's no reason to reinvent the wheel you know you talked about the turf war I think you're referring to cftc we see it from SEC we see the state Regulators kind of taking their chunk so um just you know thinking about maybe something more positive in this space um versus kind of this evolving landscape of Regulation but so um Biden issued his executive order back in March of this year um it was focused on the digital asset space from everything from illicit Finance to Innovation to safeguarding Consumers um we finally have gotten to the point where all of those many officials and agencies have handed in their reports we're starting to see the report out so Tom based on the discussion we've been having around custody and digital assets in general is this a positive thing do you see us you know where do you think we're heading from here that's a good question so I think that the evolution of Regulation is uh uh we are early in that process we tend to fund Regulators uh stand up very quickly when there's been a big issue a big loss a big a big blow up um but it's you know the U.S is uniquely um unique in our our sort of regulatory process I spent much of my career in the UK UK has a a single Financial regulator the FCA uh you know anything from retail to institutional to fixed income to equity It's all under the same umbrella here I spent the last eight years as a fintech entrepreneur it's hard it's it's not an easy process so I think ultimately what we always ask ourselves first who are you selling to who is your client is there a a retail component that needs protection and start from there but it is complicated and it is challenging but I think that you know when you look at the executive order it was a lot of very high level objectives it didn't really give any kind of granularity on where we're going and I think to some extent there's a lot of a lot of lobbyists there are that are busy at work trying to make sure these rules are crafted in such a way which which gives us you know the ability to move forward in a in a way that we know that we're confident that we're uh we're by abiding by the rules but this is going to be a long road and I think that the fact that we have the cftc that's had the SEC the state regulators and the cultural currency and many others uh it does bring some complexity to the space yeah um so Darren just to put you on the spot for the moment um what are some of the specific regulatory challenges that you face in your role sure yeah I mean um I mean the landscape is so hostile let's face it as entrepreneurs I mean it is a downright hostile environment for uh Innovation so you have to make certain decisions evasively you have to say wow we just can't even go down that road because look at all the landmines that's that's untenable like even if we lawyer up and uh Finance up that's that's an untenable road to take let's pivot and let's go this way our firm for example has just chosen to stick with like layer one Bitcoin related products and services which frankly are the simplest most straightforward and least regulated uh environment and we do that for a number of reasons we also feel it that serves our client base but um you know these um what's coming down the pipe is is a little bit crazy it's I I find the I find the Mad Dash to uh by all the different uh the whole of government approach to respond to that executive order I find it a little bit amusing it's it's a mad scramble by these people who are really way behind a in terms of their cognition and understanding of what this industry is about and we've evolved as human beings since 1933 as well we don't need the government to rescue us from every last little what-if scenario so I just I'm questioning whether that process is going to be productive and you know I mean just going a little further here I mean if you if you just you know genuflect on one knee and just ask what what should I be doing I mean is that really a good position to take as an entrepreneur I'm not sure it is I don't know if you're going to ever get a favorable answer if you do that so you do have to take a lot of risks where there's a lot of unknowns and they have to be calculated at risk you have to talk to your crypto lawyers that at a high rate of pay and see what see what they think is a is a good plan for you as well and factor that in uh yeah yeah oh did you want to add anything to the no honey for the fact I can I can relate to paying lawyers um no but it's it's it's an interesting space I mean you know going back kind of something to what Tom said earlier I mean I I've come I I spent a lot of my career working in designing anti-financial crime systems for banks and into the traditional I think one of the big things that I found just educating people is um I think there was a panelist mentioned earlier when they were talking to you know regular or to um you know legal representation and politicians on the hill back in 17 they were educating and how far they had come you know there was a huge perception that like if you were in the space that you were somehow like you know connected with long uh criminal activity or drug trafficking whatever I think the piece that really interesting for me is the opportunity or to actually create a fair cleaner ecosystem right so I don't know how much you guys know about the current kind of from an AML or money laundering situation but it's up to most organizations to independently report when they observe illicit Behavior when you look at from a blockchain perspective you can actually socialize you can actually identify things like suspicious wallets potentially and share that as an ecosystem and actually as a result it's kind of a rising tide that lifts all boards when you explain that in terms of the rate there's actually an opportunity here to actually do something far more efficient and actually far cleaner um it creates a lot of interest I think that's where the real opportunity is um and you know everyone knows how much you know dealing with complaints and regulation how much overhead that creates for every organization but there's actually There's real legitimate reasons in terms of adopting blockchain for the exchange of payments and actually doing it it actually can incorporate a lot of efficiency so um you know going back to the question versus I think it's education I think pushing that point home there's an opportunity to actually do things far better so you know Dharma mentioned the point that we're dealing with SEC regulation back in the 30s I think we're dealing with technology and compliance systems that were layered in and built around that kind of Regulation but there's now a chance to completely revolutionize and fundamentally shift that to kind of address the I think the current challenges we're dealing with so um I think that that has a lot of Merit when you're talking with um with people in in you know in in regulatory authorities and um with and you're seeing movement as well I think what's interesting The Regulators there's they're bringing a lot of let's say private sector domain expertise as well into it so there's an acknowledgment in terms of Education that they have to kind of fill as well so they can actually do this the right way notification today that you know most firms are paying for but they also are and I think chain analysis might be one of them also offering some of those services for free on their website to be able to hook up to see if these wallets you know are from a high-risk jurisdiction or a sanctioned jurisdiction or have you know something to do with the dark net Etc so that is available um uh more openly now so um again let's let's switch into risk of loss and talk about security so I I forget who mentioned it somebody mentioned rug pulls before we saw sort of the the Ico scams from a few years back it seems like there continue to be scams um that that kind of make the news but I think Paul you might have even mentioned um hacks in the industry that we've been hearing about recently these Bridge hacks so Tom as it relates to these Bridge hacks would you mind just describing like what that's really referring to um what the bridge hack is and then what wrapping is ETC sure um so I'll take a step back uh when you look at some of these issues um and and losses their behavioral people have misbehaved they've created something and immediately pulled their money out and left you losing money and then there's a technological issues that either you create a scenario where there's that money can be hacked very well not easily but it is possible to hack it uh and that's that's what we're seeing in D5 which is starting to um I think there's some more awareness that as you go from one chain to the other chain um you you know one each chain is built for efficiency uh and with certain protocols and a specific programming language when you go to another chain that is where you're seeing a lot of these issues so one solution is to wrap it so you have the asset which you're going to wrap it up on one chain you're then going to bridge it over to the other chain and what you're creating is a volt on the first chain and you're you're issuing something out of the second chain so you're seeing that become a big issue for um you know where where hackers are seeing some success um the big chains have lost upwards of a billion dollars over the last 12 months if anything we're seeing those losses increase so we know this is an issue and getting you know if you have a token on one one chain getting that to another token on another chain that's not a trivial process I think as you get more chains out there you're going to see more and more needs for Solutions around us yeah and just add to a few points that that Tom was saying there so one of the other myths that I'd like to dispel right so in terms of the ecosystem right so yeah we hear all the time about kind of bridges exposure or something a lot of that is driven by court exploitations right from Bridges I think it you know we we we we do some work in terms of looking at auditing of court but it's actually you know people talk about open source it's actually one of the implications of people leveraging code from GitHub and stuff like that to build people you know typically a lot of a lot of Bad actors are planting Trojan horses so they can actually exploit them right so that's that's a big part of the process um but I think the other amazing and Marissa had mentioned companies like Chi analysis there's one company we work with called elliptic what's very interesting is actually the ability now to track interest the activities so for example even though we're seeing a lot you know the the breaches being larger amount the ability to actually identify and retrieve those assets the capability has really in terms of has really grown by level of magnitude right so you have the ability now to track information through these tumblers and mixers because if you think of it the chain itself is a zero-sum game so there's very Advanced analytic capabilities to actually trace the information and law enforcement have actually got really good at identifying and seizing those wallets right so I'm sure people were watching the news um bitfinex for example right that was exposed back in 2016. the assets were redeemed in January of this year right it took six years but what happened in that particular case was that they knew where the assets were but they were waiting for the bad actor to reveal themselves so the assets could be redeemed right so so there's there's and that that capability is only going to increase right so you know I think it's one of the key takeaways I would have for you today is the concept of security yes we're dealing with a kind of an evolving ecosystem and as we evolve in the ecosystem we started off with breaches and exchanges we're now dealing with breaches and bridges but the ability for those assets to actually be tracked and redeemed and retrieved is also growing so actually we're actually building a fire in a way a better safety net than we ever had with cash right so the comparison with things like credit card fraud the reason why your credit card provider in a lot of cases charge you a high percentage rate is they know that in large cases the money the losses are written off the retrieval rate is about one to two percent we can change that game in terms of blockchain forensics and so so there's a there's a real opportunity great Darren anything additional to add to potential security risks that exist or things we should be thinking about today just my last thought on that Marissa would just be regarding risk of loss I think the um the the crypto providers out there in our industry who can provide uh you know Plan B and plan C and backups and think through the process for their clients obviously consumers are not able to think through all the what-if scenarios we as providers are in a much better position to design the system uh for for to avoid risk of loss and to avoid um you know again plans B and C for the consumer to retrieve funds in the case that they lose access in some other way I think those providers will Thrive because consumers will naturally gravitate towards the the ones who are saying oh yeah they thought of this for me so I didn't I don't have to worry that I both lost my password and I lost my uh whatever backup key so uh you know we we strive to do that and I see other industry players doing that as well and that's that's what we want to be doing I think that it since I know we're running a little ahead of time I actually think that would be neat to talk about not that we sort of prep this conversation but be thinking about you know one of the um one of the report outs was related to Consumer Protection you're talking about things evolving in that space so I think you know folks are always worried about security breaches or insolvency or bankruptcy what Solutions do you see coming online and maybe you pose this for the the whole panel what additional Solutions do you see coming to protect investors in this space can I go I'm actually going to give Paul's company a plug so what what a possibility out there is when you own let's just say Bitcoins in an on-chain wallet you can of course anybody can see them online with a block Explorer right your name's not attached to them it's totally uh free of identity but you can see there there's my one Bitcoin at this wallet address however you can you prove that that is your wallet address that's a little more nuanced than difficult to prove and you know some of the crypto ogs will say oh yeah I'll just sign a transaction and send it to you but most normal people don't know how to do that and nor does much modern software offer that so uh so proving ownership and provenance of a wallet I think is an interesting way of um maybe having a little more legal recourse if in the case that something does occur to your coins you can say well I had I had my uh my coins there uh they belong to me because I can prove through this you know document that I own that wallet right there and so therefore um I'd like I'd like access to those coins you know and you can be saying this to the provider that it might be in custody with for example so I think that's a really interesting development and uh I I'd love to see some of that in our business too thanks Darren yeah um no I mean I suppose just to go back on some of the things we said I I think about the opportunity in terms of these infrastructure pieces that need to be built um the big thing that we were looking at was this kind of digital chain of custody right so for example and we're seeing some very real issues I mean we're seeing things like you're coming up in 10 years now where people were either buying mining or buying Bitcoin just stay at planning right so um how do people actually have a legal record of what actually assets they have until if you're like me and you have 10 different wallets that cost different different assets oftentimes that's difficult um if you have your assets costly needed another editor party we had the disclosure with that well-known exchange back in May right that created a lot of anxiety so what would you do if you happen to be an account holder at Celsius how would you qualify as a creditor so so it's it's actually crit so you know that's the issue that we're thinking about in creating kind of a digital train of custody so that you have an independent record around that um and uh you know I think then mixing that with I think the ability to know to track and Trace and retrieve There's real opportunity to create a much tighter risk management system for the whole kind of ecosystem and I'll I'll jump in sort of uh from a different angle on the on more of the the yield farming and D5 side of things you know when we first started looking a few years ago at lending through companies like Ave or compound where you're doing collateral collateralized lending we were lending stable coins against crypto assets um you know we we had this sort of Quagmire we're trying to back out what's the appropriate risk for that because if you're getting eight percent well the credit spread seems awfully wide for something that is a short dated loan um but what what really pushed that spread out was the fact that you do have this risk of hacking or risk of loss um and how do you how do you manage that risk so we've actually had some discussions with insurance companies and Lloyds of London syndicates about offering that insurance as a way of saying we can get you great yields we're going to get some of that away in in Insurance uh but ultimately you'll have that hacking hacking risk covered so what we you know we hopefully can find the right asset right right ways of of capitalizing on yield farming or on D5 lending but ideally this will be done in a way that's that you have peace of mind that should there be a hack you're you're covered I think over time you'll see Insurance step in more and more three or four years ago there was this big big unknown much like cyber security sort of 10 years ago now you're seeing a more liquid and more more more Innovative Insurance Market as well yeah I feel like um when it comes to types of insurance that the different thinking through like State regulators and the different Insurance that's required and thinking about like crime insurance and all of those things that you didn't traditionally think you needed you know just based on employees doing things or um uh you know you've got like all sorts of ways that somebody might be able to get at these assets and and kind of going back to our regulatory conversation that sort of being an evolving area where nobody sort of has the same view on it so what you find is it's a patchwork for a company to pull together exactly what you need in place um uh to provide that security to the company so thinking through some of the topics that we talked about before we actually open this up for just a couple minutes a few minutes I think we're gonna have for questions but before we do that um you know there's still a lot of value that can be created in this space thinking about custody in general um so what do you see so asking this question to the three of you what do you see as one Innovation that can be made in the custody space overall that's a good question um you know I think that we were on a call a couple days ago with with um someone in the nft space and one of their challenges is uh a lot of people are now getting nfts in their wallets uh they're getting Assets in their in their wallet some of which are collectible type assets may or may not be worth a lot of money but how do they manage that how do they keep up with how do they make sure they've got some type of solution I think over time you've got to get a more user-friendly user experience uh that allows for the common person who doesn't have a deep deep background in programming the ability to manage those wallets more efficiently to to uh to be able to engage with those wallets more efficiently uh and to also manage what's in their wallet more efficiently I think that we've got a long way to go there unless you've answered your question the way that these guys may answer it but I think that we've we've been having a lot of discussions on you know what what would make it easier for the non-technical people to engage more in yield farming and and and and deep by lending and D5 applications in a way that's a little bit easier for the common man to do it [Music] I mean if I had to I mean it's maybe not to be repetitive but I actually think I think one of the issues that hasn't been kind of properly kind of discussed is the concept of you know we talk about custody but legal ownership right we talk about the definition of ownership so you know if you take the legal definition possession is about nine tenths of the law so if you think about that logically in terms of what that means in terms of the layer one versus Layer Two right so I think people don't understand I don't you know I think that risk is you know and we're going to potentially see given the kind of common macro macroeconomic situation perhaps more insolvency is more kind of issues in in the space what does that mean for you as investors so I think what needs to happen and I actually think it's the Crux of a lot of the problems with the regulatory challenges right now is defining this very very specific component around legal custody and ownership and it actually I think a lot of the anxiety from a regulatory perspective would be resolved if there was some Authority that actually was tracking this independent means in some way right so um and this is why we're we're going we're pursuing the problem but I think that's what's required right so um you also had like so for example people talk about like the biggest issue is consumer protection you talk about insurance like even with insurance coverage is very limited when it's available at all uh you know Tom looked at different ways I think there's real opportunity to expand Insurance in this space um but I think the other Protections in terms of security protections everything will continue to evolve which will only help these other areas yeah um I think the killer app is collaborative custody uh and by that I mean uh multi-signature custodial relationship for your coins I think that uh just solves so many problems all in one Fell Swoop you know trigger custody act stuff you don't trigger uh you you have all sorts of ways to back up and and um retrieve money it is a fantastic way to both manage risk Regulatory and uh and just best serve the customer's needs as like an intelligent human being we're gonna we as defend serve are going to hold your hand and uh hold these coins with you in collaboration I think that's a great model and I want to see more of that development going on all right so we actually have um probably time for I'd say maybe three or so questions so um I'd love to open it up are there any questions that folks have related to custody the regulatory environment we've been discussing risk securities thank you hi everyone my name is Chris I run a blockchain company in Nairobi Kenya I'm happy to be here my question to the panel is there have been some attempts in some country to ban South custodial wallets for example what does the panel think about Samosa because some of us in the Bitcoin space we believe that not your key not your money so when there is attempts to you know to this kind of burning self-custojo wallets it's really a big harm to the ecosystem so what do you think will be an alternative for this kind of you know behavior in some countries yes I mean if I want to jump in there but so I forget your question it's about private key it's a possession of your private key essentially represents legal ownership right um so I spot the strength and the weakness right of the blockchain right so this is the I think the issue and we see it as well um you know we we could come across cases where someone has come close and they've lost their key and the biggest problem actually from a forensic standpoint is actually how do you verify that how do you authenticate the first place that that their asset is even theirs right um everyone's heard about the famous case of the guy in with the land in landfill in Wales with you know 200 million in Bitcoin and that is actually one of the biggest problems when a lot of forensic companies are dealing whether someone came to them with a with a wallet and say elastic key how do I actually verify this mic so it's to strengthen the weakness right so we we asymmetric cryptography by definition is right you know in terms of its ability to be hacked it's obviously very strong but then if you lose your passphrase or your private key that's ultimately the implication of it right um but there's as Darren said there's there's other types of providers now available that can do that so if you're concerned of losing your private key as your concern there's ways to risk mitigate that right if there's if with multi-sig wallets and other types of situations right if if there's ways that you want to if you're not cons if you if you're not if you're not comfortable in that environment then that's why you would move it to a custodian for example so there's there's ways to mitigate the risk I think is the question but it is the weakness fundamentally of uh of self-custody of assets right foreign and do we have another question firstly I want to thank the panel for the time really appreciate the insights you've been sharing it's been really Keen listening to you I'm quite curious about your stance on the upcoming Mica framework markets and crypto assets and what implications it might have for custody ownership and so on and so on and referring to European Union yes absolutely the question was the upcoming so it was the markets in crypto assets the European Union uh is it 2024 so I mean I think it's so thinking through yeah I'll I'll touch on this so um in my previous company we actually pitched the um the authentic Innovation group at the Central Bank of Ireland which is the regulator in Ireland on doing a D5 fund um and one of the big challenges was that Europe which is a reasonably big collection of countries that don't always agree had not established any crypto rules there was no framework in place um you know I think that I don't know exactly where the you know what what will end up being or when it will be finalized but my senses that they will roll this out one for one reason they don't want to be left behind um you know France Ireland both have very boom you know growing fintech scenes there's a lot of a lot of pressure to come up with it with something that would work European wide and at the same time you're getting the UK really being quite Innovative there um but you know Ireland's always been a if you look at a lot of the big corporates in America they keep majority of their dollars uh from the international earnings in Ireland for tax reasons there's a lot of a lot of the European economy has has found ways to attract Capital through being Innovative and some of their processes some of their taxes and some of their regulatory um uh implementations they they they realize that you want to bring that next new economy and there's a lot of awareness in in both the UK and Europe around blockchain blockchain jobs and the ability to really harness the value there they're going to protect the consumer we think that's something that you're going to have to deal with but generally speaking our conversations has been if you want to Market this to accredited investors we want to help you we need our all of our legislation in place first but that's something they will figure out but you know we think that that's something the U.S is going to have to figure out how to work with the rest of the world on and the same with your the you know the other large countries in the world will all kind of work together on something that will ensure that you've got some common sense approach and I think even you know kind of getting down until the weeds I think it's even taking it like item by item and figuring out whether it's like scope of customer and who can you know who has access to certain assets on the platform or just even like what disclosures need to say now I think it's just prepping for all of those changes to come through either the platform itself or disclosures to Consumers to customers Etc um so I think we maybe have time for one more question if there are any and oh right there then we'll close it out I uh appreciate the panel my name is Sheldon I have a I'm actually running a smart contract analytics company and given the fact that we're talking about custody and ownership I love to get the panels to take on like privacy especially in relation to the recent things that happened with tornado cash and how um privacy relates to custody and how you guys think about that thank you so so thinking about kind of private like thinking about the future of privacy when things happen like tornado cash and all of a sudden you've got like a protocol that's actually being called into question potentially yeah does someone want to I mean I'll give it a go um I mean certainly what happened I think broke a precedent right so you have actually a piece of Court being sanctioned um I can I can talk a little bit about the reason behind it I mean so you probably saw on the news I mean the reason that occurred was that it was they reckoned about one and a half billion more dollars was siphon showed to North Korea right so that was the reason I think they didn't necessarily know any other way I think it actually shut down that fund that was the issue right but it does set a precedent right and I think I think one of the panelists talked about it earlier is where ultimately now does accountability to talk about you know you talk about does you talk about all these other things are we now changing the Paradigm potentially and how actually who was responsible in terms of these activities right so I think it'll be you know I just watched the space I don't think it'll be the first thing that'll occur I know why the card because I don't think they knew any other way for it to shut it down um but I think just continue to watch the space because I think it'll happen again but I think even with the um the FAQs that ofac issued very soon after I think that was a sign that they're paying attention to this they realized that there was this outcry over you know what does this mean for the rest of privacy coins Etc in the industry um and I think what's what's really challenging too is when you think about those blockchain analytics service providers that we were talking about like the chain analysis elliptics CRM Labs of the world ciphertrace Etc um those you know they have different classifications and so if you have a privacy coin that for some reason that classification shows up that it's a mixer or tumbler there's certain levels of risk that come along with that that a firm season goes well I don't know you're dealing with that so so that can have effect on you know those who are from those organizations so I do think that this is going to be an area that's going to continue to evolve to figure out what's really what are they really trying to block or prevent yeah and I'll just add up punctuation mark to that I'm so glad you brought up the word privacy we could have a whole conference on that alone uh I believe that privacy is the Cornerstone to a free Society so it should be respected and I think it was just very much violated with that sanction of that contract and um it remains to be seen uh it remains we've seen the Fallout from that so um let's maybe do a TBD uh and maybe another conference or breakout session on privacy and I'll give final do we have one more question oh oh I'm sorry yes okay that's what you were pointing out thank you thank you hello I'm Dmitry I'm manager of the Articles project and uh my question would be do you see any replication between the real world trust and a blockchain trust for example if I want to for example my kids to inherit my Assets in the real world cannot be replicated in the in the blockchain world what would be your thoughts on that I'll take that I mean you know I I have had conversations with our corporate attorneys about this I mean luckily um any assets can be run through basically the same legal framework that we have for probate currently so that's the good news is you don't need to invent a new legal system you can run it through the same exact process but then I think it just comes down to Logistics like you know the uh The Heirs aren't going to know where your private keys are unless you make a plan unless you have a very specific plan in place uh they're not going to know um much of anything about your assets unless you disclose them and put them in an appropriate place or store them with your estate attorney Etc so um so yeah maybe there maybe there could be a few maybe you can start a company to deal with uh you know air air uh air and estate issues related to digital assets well on that note thank you so much for attending this panel and thank you to our panelists [Music] thank you