🎤 Front Running Regulation: Why DeFi Needs Thoughtful Design

[Applause] [Music] gonna get started with everyone's favorite topic regulation uh that's kind of a joke um this is really meant to be more uh me downloading some of my thoughts um on my conversations that i have with regulators and policymakers my experience running a public company and some of the unique challenges we have to help anyone who's here who's a developer be thoughtful about the design and products that they're building making thinking about making and how can we design knowing what we want to achieve here so this is also meant to be interactive i kind of threw together some slides very quickly uh this afternoon so if there's any spelling mistakes i don't know what to tell you uh we'll just uh push through so regulation and crypto so kind of the outline of this is gonna be a little bit of my background how i got into the space uh my company and what we do some of the history of regulation in the space and how it's starting to shape up and then what scares me i think is a really important section because when i have conversations with people who work you know policymakers around finance banking that kind of infrastructure i kind of see where they're thinking this is all going to go and that's a world that i don't want and i don't think most people in this room uh want because i think everyone here who's at this conference who's into crypto has the same ethos and spirit of what the future of the web and and decentralized finance could be a much better system than we have today and then how do we avoid that uh potential future that i i see kind of uh coming and build more better you know how do we how do we build to stop that from happening so my background and why i care so i first heard about bitcoin in 2012 uh through helping a friend buy a used ipad off craigslist the guy was selling everything he owned for bitcoin i had never heard of it my friend and i thought he was absolutely insane it sounded like a crazy idea i went home and read on reddit you know what what is this thing called bitcoin it didn't make any sense to me um and then it was really in 2013 that i fell into the space in a meaningful way where i went back i read the white paper was part of a meetup group in toronto um and then really you know fell down deep into that that rabbit hole first through bitcoin and then of course ethereum and i thought ethereum was really interesting and it really was the the spirit of um disrupting all these uh centralized ways of doing things and and how money works uh and that there was a potential to be a better system out there and so i got really interested in that and that's still very much what i what i care about today even though i might sit a little bit more on the traditional finance side of the spectrum uh with where i work so 2014 to 2018 um i was spending a lot of my time researching the space getting involved in the community in any way i i could uh this is a picture of me i actually have a copy of the bitcoin paper the genesis block paper if anyone knows what that is pretty pretty cool keep that thing in a safety deposit box and so part of what i see the potential of of my history of being in the space for that long is now that i'm on kind of the the structured product existing in the capital market side trying to bring some of that ethos into traditional finance and trying to help regulators think about this space um in a way that that i see it and that maybe the the goals that they're trying to achieve about investor protection uh the way that they're going about it can be thought of in a different way so i'm the ceo of a company called ether capital you know i'm not going to get too deep into ether capital but what do we do we're a publicly listed company in canada we were put together in 2018. we're on an exchange called the neo under the ticker ethc we are the first public access point uh in the capital markets to focus on ethereum we're not a fund we're not an etf we're set up as a corporation which gives us a lot of flexibility to do things like staking to build infrastructure so it's kind of a unique unique position to be in we hold over 40 000 eth on our balance sheet and we use that as our currency to do all of our various activities we are currently staking just over 20 000 eth right now i think that we are the first ones in the world in the public markets to stake and that came with a bunch of challenges uh not so much about regulation but audit and all that fun stuff um and then you know we want to build institution-grade infrastructure we see that if this is going to continue um the space to grow you know if we're going to go from a 1 trillion set of assets to 10 trillion dollars it's going to have the jpmorgans it's going to have the traditional financial institutions participating but right now the infrastructure's not really being built uh with them in mind and we kind of think of this as the spectrum where you've got crypto artisanal bakers you know on on one side who understand the crypto way of doing things but then you have this set of standards accounting reporting audits securities regulation and for that world to plug into this space a lot of infrastructure is still missing and so ether capital kind of sits right in that middle where we see what it's going to take for those financial institutions to participate our our management team is a blend of crypto natives and people from traditional finance so really interesting work and through uh being at ether capital you know why am i giving this talk who have i had conversations with about policy and and regulation and what that's going to look like i've sat on a number of security advisory committees or advisory committees to various securities regulators um a number of of trade associations that oversee some of the exchanges mostly up in canada i work as a mentor or i am a mentor at this thing called creative destruction lab specifically in the blockchain stream so i see a lot of uh early crypto projects come through there and and i get to see what developers are thinking about and a lot of my advice to them is the same and we'll get into that in a little bit uh so i mentor there i'm the president of something called the web3 council of canada um and that that is a group that is meant to act as kind of an education beacon you know for policy makers and and regulators who don't have answers to things they don't understand the lexicon of this space you know you say things like a nonce you know to a regulator they shrug their shoulders and go like what the f is a nonce um when you say staking half of them have never heard the term staking before and so the web 3 council is meant to be this beacon for regulators and policy makers to come to for good education you know in the us there's a number of associations as well we work closely with them and again it's it's to help uh create thoughtful policy i'm an advisor to a large crypto trading platform i'm not sure if i'm allowed to disclose at this point who that is uh but anyway something generic that's in a bullet point there and through ethercapital we helped launch the world's first true spot etf up in canada we do have spot etfs not futures based uh there was one to two billion dollars of aum in the bitcoin and ether etfs depending on you know what month we check uh check the price uh and that was a lot of conversation with regulators over a six to eight month period to get them comfortable with green lighting and etf so we were the first in the world to do that which was pretty cool alongside purpose investments um and then i'm currently in conversation with a number of of policy makers it's a never-ending set of discussions people who work for you know finance canada the central banks what are they thinking about in terms of what a stable coin is going to look like or a central bank digital currency so this gives you a bit of a picture of who i am in the kind of thoughts that are constantly going through my head some of it is fun some of it i'm banging my head against the wall uh but i think it's important uh to do this work and to engage in a way with regulators that's not a just you know uh we need to tear down these systems and we need to you know there shouldn't be any regulation that that's not how i i come at it uh that's not productive it's not going to advance the space in a positive way and so uh that's me so if anyone has any questions by the way outside of this presentation feel free to stop me in the halls or wherever you see me and also feel free to raise your hand if you have any specific questions as we go um just out of curiosity how many people here are developers raise their hands well okay so not that many people so so what do the rest of you guys do are you guys like business development like who you're in business development at a protocol cool okay so not a lot of developers okay interesting so let's talk about the history of crypto regulation you know what what was uh the landscape looking like from 2009 i would say up until 2018 things started to change in the very early days of course all of the crypto trading platforms were not really registered it wasn't clear who they should register with it's still a little bit ambiguous in the u.s who the platform should register with and you're watching this fight play out of course through the cftc and the sec trying to assert jurisdiction over who would regulate these exchanges the cftc of course thinks that it's in their lane and that most of the assets are commodities and that they should oversee spot trading the sec is trying to make a claim that everything is a security or most of everything is a security i feel bad for the the platforms uh who are trying to launch new products right they're trying to offer lending products access to defy nfts staking and it's unclear what things would trigger them being in the offside of securities regulation and so some platforms you're seeing be aggressive in launching new products you're seeing some platforms decide not to launch certain activities to retail customers because they just don't want to be offside with a regulator so it's a bit unfortunate but the history of the space was largely that regulators were not really paying attention to the space it wasn't for me at least until 2013 this is a little sound bite for anyone who gets asked you know will governments ban it uh which i get asked constantly by investment advisors and people thinking about buying you know one of the structured products whether it's a grayscale product or one of the etfs we have in canada i hear constantly you know won't governments just ban it are they going to let this happen and i think back to in 2013 i think in the fall there was a hearing that was broadcast on c-span where every major u.s government agency was asked to present their views on at the time it was basically just bitcoin but you know what are what are your views on the space what are you thinking about should we ban this what should we do with it and one by one every single agency came out and said we don't think it's within our interest to try and ban this new industry what we need to do is hire new personnel uh do a lot of education get smart on what this new asset class is going to be and figure out how it can snap into existing laws or we can create new laws so it's really interesting to see that even in 2013 they were thinking that way and you've seen this recently in 20 i guess a few months ago 2022 when the biden administration says here's this executive order where again we're calling on specific agencies with very poignant questions and asking you to work with industry to come up with answers to a lot of these things so you know the history of crypto regulation has been largely that regulators didn't know what to do with it we're still a little bit there we're still a little bit stuck with it not being clear whose lane um each activity should fall in who should oversee various activities on which platforms but i think that the conversations are happening now we are going to have clarity uh starting within the next few months to the next couple years and it's going to be an evolving thing it's not going to be where we just say here's the set of regulations and then they you know walk away and go do something else there's always going to be new activities that create new new challenges so when i think about the current landscape and and this is going to lead into the things that scare me a little bit but i want to talk about some of the things that regulators and people who work in government what they are thinking about so how many people here have heard of fatiff okay not not too many people um so fatif basically is is this group that comes up with a set of guidance for a number of traditional financial institutions globally and says here are some rules and you can figure out how you want to implement them and the one that is really important to note is something called the travel rule now the travel rule is all about when you send some asset from one account to another theoretically it can't be completely anonymous there should be some amount of information that is attached to that transaction that travels with the set of funds or with the asset uh to the receiving party and this has not been something that really has existed in crypto right if i send uh you know one eth from my wallet to cheyenne cheyenne's my cto who's sitting in the front and so he's one of the only people whose name i know so i'm gonna use him for the example you know when i send one eth to cheyenne uh do i have to attach my information and his information to that transaction and there's two ways that this can exist of course one is through a self-hosted wallet right people taking possession of the asset on their own and then there's the centralized uh service who's doing it on your behalf so coinbase is going to allow the withdrawal from you know cheyenne's account to his own wallet or cheyenne's gonna withdraw from his account over to me and the question is should the travel rule that applies in traditional banking should coinbase have to do this should they have to force kyc or collect some information to allow that transaction to take place before they send those funds this has been a point of contention for a number of years kind of off and on in headlines you might have seen it being proposed in various bills throughout the last couple years but this is a really important uh thing to think about and you'll see why in a moment um of course there's there's pros and cons to centralization and the risks there i'm not going to get into the the nightmare scenario because that's my next slide but uh the current landscape is you know we've got a lot of centralization happening right now where a lot of assets are sitting in either structured products you know microstrategy holding a lot of bitcoin etfs closed funds uh holding a large amount of eth or bitcoin a lot of those assets also sitting on centralized exchanges in essentially choke points right places of custody that can be frozen they can be confiscated um and so you know aml and kyc mandates this next point here what does it mean for anti-money laundering and kyc is know your customer what does that mean in crypto it's very easy to know what this stuff means to a centralized exchange what is it going to mean in defy in a self-hosted wallet um and this is kind of the battle right now is these two worlds shaping up and of course uh governments and policy makers would love everything to happen through centralized exchanges because they'd have choke points and can push all these rules uh on those um i guess new set of institutions who would have to register then there's something called the trust and this came out a number of months ago from coinbase with a number of other large custodians where they basically said we're going to work together to create this not necessarily a database of information but if assets move from coinbase to let's say gemini or gemini to kraken or to anchorage you know the big custodians that the information of sender receiver can be shared with those two groups um and then of course you know wallets play into this because some of the wallets are being created by these uh centralized exchanges and some of the wallets are you know like metamask and it's just meant for self-hosted assets and where they don't have a vested interest in a specific exchange and then i have this um you know point here on defy risk assessment uh my cto brought this up to me before when we were just talking about staking and trying to defy things in a public structure where it wasn't clear if the auditors were comfortable with us let's say doing some type of yield farming um or even lending in in a d5 protocol because if there's no aml and kyc on the counter party of whatever that that trade was going to be they weren't comfortable auditing that that set of transactions and and signing for it in our financial statements and so we ended up just not doing anything uh because we couldn't fit that square peg and round hole so this is kind of all different things that are that are percolating so let's talk about what is the nightmare scenario what is the the thing that i i stay up at night thinking like what would happen if this was the world so nightmare scenario the thing that really scares me is the potential for a bifurcation in the space and the bifurcation in the space to me is that right now you have all of these centralized platforms saying we are being forced you know whether they want to or not they're being forced to comply with the aml and kyc mandates that are are now being pushed out globally and the assets are coming into these centralized exchanges and centralized custodians and right now you can withdraw to a self-hosted wallet but one of my nightmare scenarios is that one day they don't allow you to withdraw to a self-hosted wallet one day they say that the asset can come in but the asset can't go out or it can go to any counterparty who's in that trust right in that consortium of custodians or exchanges but it can't go to a self-hosted wallet and part of what scares me there is the idea that if they provide a wallet can that wallet interact with every smart contract that lives on chain or maybe it only interacts with certain whitelisted smart contracts and so there's certain applications that you as an end user can participate in where you feel that you have control over the asset but not really you just have these you know permission controls on you know they've said we've provided you this wallet and this wallet will let you you know do certain lending on ave or compound or certain trades on uniswap but it's going to block everything else and what scares me about that is you're going to split the space essentially into a dark market in the light market where you're going to have these these two different versions of the assets you're going to have eth that lives in the center well that is loud uh you're going to have if that lives in these centralized boxes this kind of watered-down version of true crypto where end users can't really do whatever they want it stops becoming you know a true digital bearer asset and it becomes this you can do what you want as long as we give you know you the right to do uh we approve it and that really scares me because to me the most interesting stuff is going to take place in that open permissionless world and so i really don't want to see this bifurcation in the space i'm not exactly sure how we front run that but it is something i'm thinking about is what happens if we go one step further of assets go into the trust into decentralized choke points but they can't leave so it's really important to do a lot of education for people you know in this room in this space and then in your network of friends and people interested in the space to understand why a self-hosted wallet is so important and not just to rely on holding your assets you know on these centralized exchanges and i don't know how this is going to play out but i think in the next few years this is going to be a real conversation that's going to trigger a lot of people in canada uh there was something called the freedom convoy this this trucker rally might have hit some of your radars and one of the things that became very clear is it pushed the idea of crypto the conversation of crypto and these digital bear assets basically to the top of the pile of everyone in government and every policy maker saying can we stop people donating to this protest that we disagree with do we have a centralized choke point and of course if the answer was no because the assets that were being donated in bitcoin or eth were in self-hosted wallets well governments and policymakers don't like that and are quick to say oh so the solution here is let people have the assets but force those assets to exist in a centralized way where we can you know choke point it where we can treat it like a financial institution and so that scares me um so you know what what is another bad outcome here is you know where biddle where does the building take place if we have this bifurcation you know people aren't going to be able to innovate in the same way in north america or whatever jurisdiction says you can't have true on-chain permissionless defy you can only do kyc versions of defy which by the way my answer for anyone who says you know can you have kyc and d5 my answer is no that's c5 we already have that we don't need that again and the way that i think about it is that if you break fungibility you lose composability so if anyone's wondering like how you can tell someone why kyc and d5 don't go together it's that you you're breaking fungibility and then composability is out the window or it's watered down so yeah it scares me to think about will certain jurisdictions basically push all this innovation somewhere else and say unless you go and get permission to build your specific application licenses registration you know we don't want that activity here it pushes developers in into uh different areas and then you know will retail users get left behind a lot of people uh who are here i'm assuming have been invested in the space for a little while maybe you've had some financial success currently you're feeling some pain uh but you know retail part of the the advantage here of what crypto did is it stopped this two-tiered system in centralized finance we have a two-tiered financial system of accredited investors and retail investors where the accredited investors are allowed to take on more risk get access to private deals and the retail investors are pushed out of that and they're left waiting until an asset comes to the public markets and they're usually buying it at some multiple of where the venture you know the venture funds and the private institutions have been able to participate crypto was meant to be the this this great leveler of access and so i i do worry that if we start having these uh watered-down versions of of on-chain crypto retail users won't be able to access all those products so they'll get pushed out of lending maybe they're not able to stake unless they stake through a centralized institution that's something i think about and of course i have down here it says you know are we going to be back at web 2.5 and cfi i really don't want us to go backwards it felt like in the last two or three years there's a lot of these really interesting verticals emerged we made so much progress in what you can do on chain and with crypto when i think about the early days of ethereum that kind of like 2016 2017 era you know we had the ico boom but we didn't really have d5 yet we didn't have uniswap we had attempts at that through um ether delta if anyone remembers either delta but like the really cool stuff has really emerged in the last two and a half years and i really don't want to see that progress get throttled back or slow down because of bad policy uh staking risks i put here because we're staking at ether capital and i talk with cheyenne our cto a lot about is there a world where the regulators say the staking providers the uh the companies who are running validators need to register some something with the securities regulators you know i don't know what that registration would look like but is it possible that a securities regulator looks at that staking provider and says you can't process transactions that don't have kyc on that address something i don't think most people have thought about but that to me is super scary where again you'll have this bifurcated space where certain transactions will get processed by this validation service and then i don't know ones that exist in other jurisdictions are just going to process everything do we just have a fork in the chain and we have two versions of of eth2 i don't know what that would look like but i don't think it's good and i wonder anyone who's thinking about building a staking company can you be thoughtful in your design you know where are the servers running are all those servers if it's physical hardware somewhere that you've set up versus something in the cloud does it all live in one specific jurisdiction or is there diversification globally in other jurisdictions that is much harder to sense or shut down or have a regulator say you need to censor certain transactions or certain addresses so these are kind of the things that i i worry about how do we get ahead you know what are some things that we can do to be thoughtful about how we're designing certain things when i look at various platforms or front-ends one thing that scares me is almost everything is running right now on aws and maybe it's pushing a backup over to ipfs we need to flip that you know it needs to be ipfs first that is where people are going not aws first and it may mean that things are a little bit slower i'm not a developer i'm not you know the most technical person but i do see that as long as you're pushing things on aws that's not ideal we need to go to ipfs first and uh part of part of what uh i think about that could happen one day that also kind of scares me and i don't know how we design for this maybe some of you guys have ideas is that you have let's say i'll use unit swap as an example you have uniswap that is this on-chain contract and then you have this end that's allowing you to interact with the unchain code and right now it's ish easy to go to that front end and say hey you need to de-list some derivatives you know that that's definitely an illegal security or it doesn't have a prospectus or meet certain requirements you need to take that off the front end and when i talk to regulators and one of their mandates is with good spirit investor protection i'm always trying to push back and say investors and people you know in the real world in the meat space world not just the lawyers who sit in you know these buildings they don't think of things as securities and commodities and the risk profiles of of those two different buckets they either want an asset and certain activities or they don't that's it and they're going to find an access point and so one thing that scares me is if you if you have that front end that de-lists certain assets or certain activities what you're going to do is have different ends pop up who will provide an access point to that same asset that just got delisted from the trusted group of people and maybe there's some malicious code that's been inserted so you could have like the true uniswap frontend and then you have i don't know moony swap i don't have a funny name for one but you know someone builds uh some clone of the uni-swap front-end inserts malicious code does that retail investor or does that user know how to audit that site is there some way that we can ensure that the contract that that front end is interacting with uh is not malicious in in any way that we know that it's it's the correct code and it's all all thumbs up or is the user about to go click a bun a bunch of buttons because they wanted to buy an asset that was de-listed off the good front end and then ended up losing their funds so however we can try and build or be thoughtful about that i think would be really great and i have as the second point here you know helping regulators think about this thoughtful policy because again i'm trying to help them understand you want people to use the actual uni-swap front end or the one-inch front end where we know who the developers are we know that they're above board they've put their faces out there they put their faces on the website we we know that they've been good actors in the space for a number of years i'm more concerned when the pineapple on twitter you know builds a front end and maybe it's trustworthy but maybe it isn't so different ways about going about their objectives is something we can help them think about how decentralized is enough this is not something that i have an answer to but thinking about trying to cross some threshold where you feel you may not have true control over a project anymore maybe is the definition of it was decentralized enough and when i talk to friends who are lawyers at various protocols you know this is one of the things that they talk about all the time which is not enough of these projects are thinking about how decentralized they are and they're still retaining too much control so it's important to ask yourselves these questions when you're designing you know various products and services to ensure that from the get-go there's some amount of decentralization and you're working towards achieving that asap i put in here titles only because when you see people who have these kind of traditional titles like ceo and cfo you know is that decentralized i mean there's certainly no ceo of bitcoin or a cfo of bitcoin there isn't a ceo or cfo in in ethereum but as you start to get into some of the specific uh lending protocols or projects and you do start to see some of these titles slip in does that trigger a regulator's curiosity and go hmm how much influence do they have over this protocol so something to think about when i am mentoring at cdl creative destruction lab i meet with a lot of early stage projects people who are tinkering people who have ideas people who want to build crypto software almost none of them have worked with a proper law firm to talk to them about the activities that they want to do on chain a lot of them will say well i have a friend who's a lawyer or they used to work at a firm and now they've left and they're giving us some advice that's a great start but it's really important to approach in my opinion some of the big firms who are working with a lot of the big projects um like latham watkins for example you know is doing i'm not going to name who some of their clients are but you know those levels of firms that have a lot of experience working with the cftc and the sec and then these protocols and helping them be thoughtful about what they're building and getting creative about you can do this thing but you're going to have to go at it from a different direction or you can go about it but understand the risk or the gray area that you're existing in for now really important to get that advice up front not later and yes it may cost you you know ten thousand dollars which is is hefty but for these protocols or projects that want to have you know market caps or valuations of hundreds of millions of dollars or or billions of dollars ten thousand dollars to make sure you don't go to jail is probably a good idea um although most people i don't think go go to jail but they they end up uh in a very uncomfortable set of conversations with uh with regulators so i can't stress enough get good legal advice get recommendations from projects ask people on twitter who are working at the big protocols who they use for legal counsel and also sometimes you can ask some of those projects or protocols if they have a general counsel working or a head of legal working for that project or protocol ask if they'll give you 10 minutes of their time tell them what you're working on and just hear their thoughts they've probably had to ask a lot of the questions you have and you can get some free advice um i put how much control does the team have we've already talked about that i've made this next slide about for anyone who's thinking about a token some of this stuff is obvious but i've kind of summarized this with a lawyer who was at a big stablecoin project not one that blew up uh a big stablecoin project and is now at at a major protocol for ethereum i said can we together come up with five points for people who want to create and launch anything that one day will have a token so you know number one try as hard as possible to launch a completed product with no promises of using the token or using a token sold or airdropped to raise funds for operations this is really important uh basically you know not making a promise to anyone that there will be a token in the future just go out and build the product first number two don't have the tokens accumulate protocol fees from the get-go uh let that be something that gets pushed in later and it needs to be a community decision and a really good example of this is in maker if anyone's familiar with the i think was called the pcm module that would allow usdc to always convert to die at one to one regardless of where the peg was for dye if anyone hopefully people remember this that was not a piece of code that was pushed out by the maker foundation that was something done by the community by people who had nothing to do with the maker foundation and they were very intentional about they're not going to be the ones to propose it they're not going to be the ones to vote on it that has to be something for the community to decide it is a really good example of decentralization and thoughtful design or thoughtful contributions from a community who decide to do something not from a centralized group of people behind a protocol number three language language and language be cautious how you describe a protocol and the token and its function so this is something that lawyers can definitely help you with it's something you need to be very careful about because all you need is one document or one investor meeting where you've hinted at a potential token or something that later that document comes back to create a lot of hassle or trouble for you so really be thoughtful about this kind of stuff number four you know find the product market fit before you decide to release a token you know figure out does your project have legs is there a need for that in the community can it gain traction on chain not just say hey we're going to do a token and we've kind of thought of this product idea but we're just going to try and raise a bunch of money and we're going to promise some tokens because we all just want to get rich really think first about what you're building and who's going to use it before you think about what a token might look like and number five you know if you are going to sell tokens because you're trying to do a raise really unfortunately you have to focus on private sales to accredited investors and then there's you know various ways that you can do lock-ups and cliffs and things to release those tokens over a period of time where it doesn't get dumped on retail again these are all things that um a lot of people probably have thought about lawyers will help you with but here is just you know a nice five five token a summary of some thoughts on token design so uh i don't know if we have uh time for a q a i haven't really been looking at my watch uh but does i put a because i'm canadian and i don't know why everyone always says you say hey i'm like no i don't but you do so does anyone have any questions uh with anything relating to regulation policy how government is is thinking about the space uh happy to kind of now open this up to to the group for a conversation so the question was about quadriga which was an exchange in canada that i think operated from about 2014 or 2015 and then had an unfortunate end uh late 2018 where about 200 million dollars of customer funds just went you know bye-bye so in canada um you know this is an exchange almost exclusively focused on on canadians um in canada at that point in time there was no oversight from any regulator now one unique thing in canada is that we don't have a separate commodities regulator in the u.

s you have the cftc and the sec so you have two different groups looking at commodities versus securities and in canada there just isn't a commodities regulator so what happened was is it it set off um a lot of the regulators and people in government saying like who's responsible here who should have been overseeing this platform this marketplace and i i'm making a joke here but you know everyone kind of did a shrug shoulder emoji and went we don't even know what these assets are or who should be overseeing them and they made a decision um there was a staff notice put out by the ontario securities commission where they basically decided that if a platform um if a platform sells to a customer a digital asset whether it's a commodity or a security they don't really care and doesn't deliver to that customer the asset immediately into a self-hosted wallet so it remains on the platform what they said is what they've actually sold you is a derivative and in canada that derivative is going to be captured by securities laws and so the regulator said great what they're selling you then is a derivative and therefore all of these platforms need to register as a securities dealer because they're selling derivatives it's a bit of a bizarre interpretation but that's what they went with now the pro of this is that they're starting to to become some clarity in canada over who would oversee these platforms and you're starting to see um all of the regulators and in canada the securities uh securities laws there's actually different regulators for each province which creates this weird patchwork of registrations and different sets of rules on which provincial securities regulator will let you do different things a bit of a nightmare um but it has created at least a path towards clarity and we're not quite there yet but you're starting to see these local platforms figure out what assets they can offer who they need to register with how they're going to be above board and try pushing the conversations forward on things like you know staking and defying all that stuff there's still a ways away but different than the us where i think the platforms here don't even know who they need to register with it's still not clear exactly what registrations they need to hold but i do think that that that's coming one of the issues also in canada is that i think it's everywhere it's very hard to get support from proper banking institutions that don't support these businesses the risk profile is just way too high for crypto companies and if they even smell the word crypto anywhere to your business they don't want to bank you and so people are using credit unions uh to to get access to banking services instead of you know the proper um financial rails so you know quadrica uh quadriga kicked off a set of conversations that are being worked out the real problem with quadriga by the way to me wasn't even um forget that it blew up it was bad governance you know there wasn't a board of directors there was no real oversight you had one person just doing what they kind of wanted with funds that were sitting in uh foreign bank accounts in crypto and you know a self-hosted wallet a bunch of ledgers or something on his on his laptop and he was moving those funds and leveraging on other exchanges a bit of a nice parallel to today that what you're seeing is the problem is is leverage in the system not that the protocols themselves are blowing up so a lot of the issues with quadriga was around governance and i think that you're going to start to see better clarity in the next one to two years as we know what registrations are going to be required for every platform when that clarity comes the traditional banks and financial institutions are going to start offering their products and services to these new businesses it's not that they don't want to do it i mean you have to imagine that in that second half of 2020 till now anyone who had a relationship with any of the big banks if they're not in our cohort you know our generation who's comfortable with these assets and on these exchanges would turn around to the financial institution and say can i just buy my bitcoin in my ether for you guys i trust you you have a history doing custody you have some amount of insurance you know why can't i buy that through you and it's not that the banks weren't getting those questions they're getting those questions from tons of customers at least up until probably a few months ago um and and the banks don't want to do it because they don't know how to do it yet it's not so much a technical issue you know they're going to go and buy buy teams products they're going to go and do a big acquisition they'll go on an acquisition spree eventually what they need is the clarity from regulators how to offer those things and specifically if you think back to that slide where i head up fadiff and aml and kyc the anti-money laundering laws that they have to abide by that is that is where they're currently stuck so uh yeah that that will come in the next few years are we almost out of time what what time is it yeah i'm getting the head nod um how what i mean that's it it's done no it's done i can end here anyway thanks everyone if you know if anyone has any questions about this stuff happy to stick around and chat there's no answers to a lot of these things but they're certainly important things to be thinking about even though they're not fun and then working you know as an industry to have these conversations with regulators and policy makers and then ourselves to help each other think about how we design the protocols and projects that we want to make sure that they don't get captured by securities laws or end us end up getting us in trouble so thanks guys and see everyone around the building