Panel | Leveling the playing field | ETHDam III - 2025

Welcome to EA to E to E to E to E. All right. So, I'm going to ask Victor to come to the stage um in a second and I'm going to be back up. Uh you're going to see me in a little bit of a different headsp space in about one minute because I'm going to be trying to take on the role of Dexes in this conversation. So, wish me the best of luck.

Um, but without further ado, I'll hand this over to Victor who can introduce the other uh panelists and then um I'll also give you this slider iPad as well. Excellent. Cool. Thank you JJ. So good morning everyone.

My name is Victor. I'm a researcher at Cyber Capital and I'm going to be moderating our next panel here which is going to be around the topics of centralized exchanges and custodians. And to get into that topic, we have the CEO of Cyber Capital, Lex Verkheim, as well as Dorina from Bit Vavo. And JJ, as mentioned, we'll be making a case for Dexes in that conversation to gain some additional perspective as well. So, without further ado, join me on stage and I'm going to give you this.

You can keep that one. I think this one. I'm guessing I'll take the left. I was sit by myself. Sorry.

I got All righty. So, our first topic that I wanted to get into was around the topic of listings. Um, maybe starting with Lex, but of course you can take this in any order you guys want to. with all of the new regulation coming in, uh, listing availability of assets is a topic that's often, I guess, under pressure. And I was wondering from all of your perspectives, how the regulation around the listing of access assets affects your businesses, affects the way you're forced to operate, and how that maybe has hindered, slowed things down, or maybe adds some risk mitigation.

Okay, then uh I'll get started on this. Yeah, indeed as centralized exchange uh in the process of becoming a CASP under Mika very soon and there's already a couple players in Europe that do have to adhere to the rules. Um I can definitely say that it does add value to the end customer but on the other hand it's a very delicate balancing act to find in this environment where is it that you are satisfying the demand from your customers but also can adhere to regulations. Now under Mika of course the listing requirements making anything available to your customers is quite a rigorous process both for the project and both for the exchange or any party that wishes to make this available. Um this of course always raises the question hey is it is it helping innovation in Europe?

Is it helping customers access more assets because a project uh might want to think once or twice about their European entrance. They have to prepare a white paper. They have to prepare ESG disclosures. Projects have to do full uh due diligence on their ultimate beneficial owners which and I'm sure you can see that for the end customers and where the regulators are coming from. uh they saw a couple of examples unfortunately in the past where having these uh risk mitigating measures in control actually could have protected the customers and of course the centralized party is always going to be in favor of protecting customers.

However, because a project needs to adhere to all this, they will, as I mentioned, think about their European entry strategy, which could result in European customers actually having later access to innovation, to newly listed projects, um, if at all to begin with. So uh as a centralized party we always have to keep it in consideration what's suitable what's the best for our customers to actually mitigate risks to protect them but also to be able to keep up with the rest of the globe basically with access to the crypto market. Excellent. Thank you. Yes.

Um does it work? Hello. Um well here comes the frustration. We we as cyber capital we um we invest in projects that we feel offer our clients best exposure to cryptocurrencies. Um and that doesn't mean that we invest in the 25 biggest.

Um so what happens is that we our researchers uh search the best possible uh tokens protocols and uh for the big ones there's no problem but then we enter into some smaller uh tokens and we are faced with the problem that central exchanges don't offer them. We need to go decentralized. Um decentralized however is u running to a lot of walls and one of the walls is regulations. It's not only mika um but also a Dutch law called WWFT AML let's call it that way. The regulator asks us to to get a full full um let's say um research into you into uh how you got your money, who you are, who are your shareholders, where did the money come from, where did the money come from and then we hit that wall, right?

So then we are forced to go to uh let's say OTC parties, then we run into liquidity problems because we need to be liquid. We we buy and sell every week. We redeem, we get new clients in and our professional clients are asking us to say, are you indeed ticking all the boxes on the regulatory side? In other words, we cannot offer full um expo best possible exposure. So, we have a suboptimal product, but it still works, right?

That that's the um the gist of it. Hopefully. So, hopefully so. And maybe I know it's not as direct of a question in the DEX department, but maybe kind of the upside that that brings to dexes and in general how that paradigm from the perspective has changed. Well, the the technical part is as long as you meet the token standard, we will list by default and people can provide liquidity and earn.

But the downside of it is is this is an oversimplification, but a DEX in a way acts like a mixer, right? You don't know when you're taking money out, you don't know where it's come from. You don't have a proof of funds. and in a regulatory environment that's a big no-go. It's my understanding that so far DeFi has been left quite outside of the realm of Mika which I think is very a good thing that the European Commission has done and we'll see how and when that changes over time because at some point I assume they will come but I think ultimately one one movement within DeFi is this concept of institutional DeFi or permissioned pools that is a potential fix to provide that tracking of funds and that that proof of funds but is has not yet hit mainstream adoption for whatever reason.

Um, but the other thing I want to say is that consumer protection is as a DEX, if I'm representing the entire DEX industry, I do not want to offer consumer protection because then I am not decentralized, quote unquote. And so that is where for the vast majority of users that are on boarding, you do want to have uh the consumer protection. Um because as we've seen in the recent memecoin cycle, these meme coins, people, if you treat crypto as a SAS product, people are coming in, they're losing money, and they're churning, quote unquote, and they might not come back. Whereas in a decentralized exchange, of course, that can still happen depending on what you buy. But very well said.

Thank you guys for your inputs there. I think what you mentioned, Lex, particularly is interesting and might lead us into sort of the next issue or topic that is of interest for all of us, which is liquidity. Um, I can definitely understand that as an institution, liquidity is important to provide your clients with, I guess, trustable assets and to ensure them that their money is indeed safe. Um, and what JJ alluded to with kind of these DEX sex hybrid models not really gaining adoption, but it is at least from a technological perspective something we've been seeing certain exchanges do, whether it's offering an onchain wallet where you can use your own dexes or even sharing liquidity between order books of sexes and dexes. How do you guys view that space evolving?

And do you think that truly solves these problems or it's more of kind of a hybrid attempt that due to the dexes still being involved may actually not be such a great solution in the long run? Yeah, I think this hybrid model is in especially in Europe still not gaining a lot of traction for the time being. Uh yeah, it definitely uh combines both the best and the worst of both worlds. It does give some more flexibility towards offering assets as well of course and more transparency with regards to onchain proof of reserves. Um yeah the KYC the pools as you mentioned is uh a good first step uh towards this how overall the decentralization is actually a spectrum and uh under lot of regulatory regimes now it's starting to get under a magnifying glass okay what is actually sufficiently decentralized does anyone have uh sufficient oversight and control over it so it still will not mean that there's going there's going to be a full full wide West running in parallel to the centralized product and we can do whatever we want on the DEX side.

However, it does enhance transparency and flexibility and uh I think there's also a longer term game but that we see outside of Europe by offering uh decentralized pools as well not necessarily only for uh cryptos for now but uh potentially if we're going towards uh tokenization of further assets which could also enhance the offering of these platforms but as I said in in Europe I think we're still not quite there as it's probably not solving all the problems that we need because of the still uh sufficient centralization of even a decentralized party partly attached to the centralized platform. Yeah. Well, for me this question is a little bit less let's say applicable. Um I do however want to say something about I do I I I listened to Remy before about Europe being important. Well for us we we're global right?

uh were also I think fair to say US focused for a for a large bit where although regulation is way behind uh in in years um it's probably going to be um better um but still we we'll have to wait and see. Um still liquidity is our main concern here. Uh so uh um and especially with tokenized um we're thinking about a second fund where tokenization will be uh will have a big role. So anything which will offer liquidity regulation is is good for us. The more the better.

Great to hear. Perhaps JJ some marks on that hybrid. Personally I actually don't know how the dexes view that kind of crossover. So perhaps interesting if you have some insights there. Dex is ultimately their whole point of view is I provide the infrastructure and it's not my problem quote unquote.

That's again an oversimplification but um I think that's where the the future of kind of public chain but permissioned applications to have these closed environments as mentioned with the in institutional DeFi pools. This is something that ultimately fits a lot of requirements from a lot of different parties depending on whatever regulation is important to them. Be that the antim particularly the anti anti-moneyaundering uh regulation that's everyone cares about. Um but that is where ultimately the the dex is they they they're fighting for the users and and the and the the availability for users to do whatever they want whenever they want in through whatever tool that they want. And that is where there is now this contention between the privacy regulations and things like the travel rule and wallet identification and all of that.

And I think it's really very much my hope that we don't end up in kind of like this centralized world which is good quote unquote and then the decentralized is bad and everyone that's in there is a bad actor because that's really not what we want and I think that's where the regulation is is almost forcing the the separation of those two worlds. So we just have to be careful there. Very well said. Perhaps the most blaring topic that uh this panel would be interested in. Uh besides liquidity and listings is actual custody.

Um obviously that's something you guys all have very different positions on post. In a world where we have big buy exploits, we have FTX collapses, but we also have large exploits indexes. How do you view user trust in either case? either trusting the audits and the reserves of regulatory bodies and the different standards around the globe for that versus trusting let's say a more battle tested deck maybe not the newest one which uh has a lot to be seen and perhaps lex from a client perspective do institutions and clients find more preference in one of those solutions what does cyber do and why shall I shall I start sure um well obviously clients and we have seen FTX we've seen um It's fair to say that if we if we go for exchange risk, right? Uh and and and it's um goes wrong and we lose 25 30% of our assets in one day, um there's not much left you can do.

So the risk is sort of asymmetric in a way. We cannot afford um that risk. Um so I think there will be a time that exchange will say okay you are fully protected. Uh but right now as you know we have selected uh Bitco um um cold storage insured um so to not have exchange risk and if anything only when we trade and um then that is we cannot do it another way because we're we're high conviction um long only very long term uh that would that would really keep uh me awake at might say, "Okay, we have exchange risk all the time." So, um I think it's fair to say before that we had our own custody.

Um and um that was well safe enough at that time. Um there will be a time that exchange risk will be probably be as in threadfi will be good enough but for the moment like a decentralized exchange for example. Uh but for the moment we're happy with um with our current solution. Expensive but worth it. So it sounds like a bit of a hybrid approach is still in practice although custodians are preferred.

Correct. Correct. And perhaps from your guys' perspective um yeah dealing with money coming in from onchain and also obviously managing your own liquidity. How does that look from a centralized exchange perspective? Yeah.

So uh I'm sure that this audience is extremely sophisticated when it comes to uh private key management. But if you look at uh the wider adoption wider adoption of retail customers uh using an exchange or a centralized service or even institutions u you're going to be exposed to some kind of third party risk as well. So in this case being well regulated can give you some comfort. I can assure you that uh custody uh and fund management requirements are extremely strict uh when you want to get regulated under makeup. But then back to private key management.

Yes, for some customers, especially customers of uh centralized parties, it's not always an option to manage your own private keys. And then of course, a centralized party does bear a lot of responsibility for holding those funds safe. That's what regulation is also trying to enforce and make sure that either your own custodial solutions or any third party custodian that you're using is actually solid and battle tested. On the institutional side, I think we can see that the major custody providers are also uh keeping releasing this off exchange settlement solution within their own custody environment to mitigate exchange risk that an institution doesn't want to be uh exposed to. But um I would say that um the new very strict uh standards uh that are being imposed imposed on centralized parties can give some comfort to those customers who do not wish or cannot manage their own uh private keys in the future.

Happy to hear. Um, I don't know. It's a bit difficult of a topic from a DEX perspective to answer, but maybe some thoughts or something around private key management tips for those users who do want to stay in a DEX world. I think one thing is is the reality is is most hacks have happened at two or two centralized exchanges or centralized parties in crypto. Right.

So that's where if you would rather have regulation Yeah. All right, Justin. If you'd rather have regulation or not, right, you want these players to be regulated. So, they're doing a better job because it's the market that's choosing to not manage their private keys and to deposit into a centralized exchange. That's the market saying that.

No one's forcing them to do it. And so then you want them protected. Um, but I think that was the key point that I wanted to get across there. It's actually a great segue. Uh, maybe we can follow up with the current regulations and how they impact user behavior.

Do we see these regulations being kind of crypto empowering for users and really adding lots of safety? And what's the trade-off in kind of shifting that power to new gatekeepers or new custodians? And how do we kind of balance the values of crypto with making that journey in a safe way that doesn't lead to a civil war between the two parties where no one's standing? I'd like to say one thing to start, which is just that I think in terms of how it's impacting people, like how many people in this room know about the travel rule? like really put your hands up if you know about it.

Right? So that's like maybe a third, right? The travel rule means that if your stuff has ever touched a centralized exchange or if your cryptos ever centralized exchange, your KYC and your KYC details can potentially travel with you to other venues, which means next to your blockchain transaction, there's another effective transaction which gives your KYC details, right? is I think the the simplest way of explaining it and lots of people inside crypto don't know that that's already a thing and is already being adopted by I I think it's over 50% of exchanges in Europe at this point. If you go by no to Benet if you know no to Benet you know not no to Benet.

Um but I think there's this key point that a lot of people aren't actually educated how deep that the regulation is already going and how it's already impacting people. And I think that's part of why I like Ethan is that that education. Well, I have a a different answer on your your your question. Um, which is that regulations pushing are pushing towards the bigger protocols, tokens and that gives sort of the audience the wrong idea that big is good um or if an ETF is issued on it, it's good. Well, since I think right now two of our researchers are um including our founder are now present, it's obvious that we do not um have the same uh thought about that.

We really like um tokens for a different reason and big is good or regulated is good um can be well quite misleading. People buy into tokens that they think are great because everybody's buying them. an ETF is issued and it's regulated but it doesn't say anything about the value the usage etc etc so I think it can also it's regulations are good it gets getting new client base in but can also be quite misleading well said um yeah indeed when considering choosing a centralized party in this case or what to engage with maybe the first thought is not oh is it is it regulated uh am I going to choose something that's regulated in Europe versus something that's offshore or not even regulated when but when something happens that's when it matters for the customers if if there's a hack if there's uh mismanagement of keys if there's somebody you can go to that hey this happened to me do consumer protection rules apply am I going to be protected am I going to be reimbursed So maybe it's it's an afterthought when choosing a provider. Um customers might not keep this in mind in the first place. I believe they are more and more and it's becoming top of mind.

But uh indeed if there's something available offshore, I will go offshore to get it. If I cannot get it in Europe, I might take the risk to go elsewhere. But in the end, it will matter if things really go south. Am I protected or not? Excellent.

And I think uh one dynamic that we now touched on a bit more which might be interesting to get into is I'm lucky to be sharing the stage with companies who have thankfully survived all of these big exploits and collapses which have happened whether decentralized or centralized. And obviously there was a time before we had all this regulation. Obviously as a researcher at cyber I do a lot of nerdy research into what I think is a safe project. But I imagine in the past this was also definitely the job not only of the researchers but also of centralized exchanges. How has the process of determining which coins meet those standards changed now that regulation kind of provides their own lens?

Uh is it more strict, less strict, is it just different? What kind of goes into that? And how has that changed the incentives behind what assets to list? I would say also more strict and also different uh to answer your question because what we needed to keep in mind already is the legitimacy of the project, the liquidity uh that we can uh ensure on our platform are their market makers uh willing to uh quote it on our order books. These these are still and always have been in the best interest of both the customer and both the platform.

Yeah. With regulations, we also get a laundry list of other aspects that we have to take into account that we have already touched upon. White papers, EG disclosures, uh, uh, full AL checks on ultimate beneficial owners. I think it it does add to the process. It does make the process more lengthy, a little bit more cumbersome as well and yes does add some limitations to it.

But um in the end in the interests of customers I think centralized parties were already conducting their own research uh to provide indeed uh trustworthy and robust projects. This adds to the list of things that we need to do before uh we make anything available. Yeah, that makes a lot of sense. Perhaps uh from a fund perspective, have you noticed those changes within the fund since regulations coming on things getting more difficult? Well, yes, obviously we're noticing those changes.

Um I I think originally Coinbase was also asked to be in this panel and it's also fair to say uh we we we do business with Coinbase that it's not only the regulatory side but we sometimes also see that for other reasons uh preferring base over Solana that we cannot um um um do trade with uh in in protocols that we actually do like because of other reasons than regulator atory. Um, and that is a little bit of a shame. I would like central exchanges to at least try to stay as as we know in threadfi to offer the total spectrum if regulatory constraints and everything are um are checked and and that's sometimes not the case. So then you need to trade with multiple central exchanges. Indeed, I also have seen that in the company being a bit of a a point recently.

Um, I think you made a good point uh with these additional incentives and things like Coinbase particularly. We've seen the rise of certain centralized exchanges venturing into also creating their own L2s or onchain solutions with base for Coinbase or also Inc. for Kraken. And obviously there's incentive misalignment there between the profitability of that chain and the alignment of that ecosystem versus optimizing for providing availability of assets which may compete with those assets. And of course we can only speculate how that actually works internally but there's definitely some trends I think uh everyone can pick up on which do create some limitations and provide make people need to go to a more broad range of solutions.

How do you maybe from the Bit Vavo perspective view your competitors taking this kind of onchain hybrid approach? Is it something you've thought of if that's something you can share? And competitively, how much of a differentiator do you see it being in the listing game? Does it benefit you that they don't list these types of tokens because perhaps then it allows you to attract more volume or is there really value that's being gained from having that type of solution which may actually be of interest to more centralized exchanges? Yeah, as I mentioned in Europe, we do not really see uh this type of adoption uh yet.

However, I absolutely do see the benefits also of bringing more customers on chain. But you also need to consider that uh the layer 2 additions to Kraken and to Coinbase. Uh I think they are also part of a bigger and broader game in the uh bringing more services on chain. You can see even uh the stable coin solutions uh on base uh the payment aspect of it the future uh very tokenized stock trading real asset trading. So I think uh this is indeed a long-term game to provide this uh solution next to your uh centralized exchange as well.

um in Europe it's not gaining traction for now and uh I also do not know if any other parties uh are in the works for that of course they will probably not disclose it but I feel like it's less of a top of- mind uh topic in Europe as well uh it definitely does add value I don't think that on the grand uh scheme of things uh here uh there's u for the time being uh differentiation whether these assets are painted available on the of bigger centralized parties uh or not. Perhaps uh from a DEX perspective, how do you see the the layer 2 sex hybrids? They obviously do have benefits of bringing users on chain, these new users who use centralized exchanges. It's often their one of their if not the easiest way for them to get onchain, which then could lead to trickle down DEX usage and bring them into this ecosystem. maybe how do dexes view that dynamic in general since dexes can also exist on these types of layer twos.

So a DEX ultimately um its arch enemy is fragmentation and liquidity fragmentation. And I think that's the most important point that I think in this in this in this context is most relevant is that obviously base coming with an L2 that's pulling liquidity away from Ethereum mainet but then you also have X other number of L2s that are also doing similar things. Um I know this on good information uh but inc was made by three developers inside Kraken because they were like m yolo let's do it right is that why you're going to is that the say is that how ethereum came about definitely not right and so I think that's where it's really about why am I doing this what's actually going to be the use case of this of said chain right and is this actually going to become a good venue of traders to come and liquidity providers to provide liquidity and I I think one thing that I maybe wanted to mention earlier is about like centralized exchange liquidity, but what's so nice about decentralized exchange liquidity is it's so market based. Like I don't know how many people here have have been an LP in a DEX. Show of hands.

So it's it's quite a rewarding fun experience with yield. Obviously it's risky, but it. That's why we're in crypto, right? Well said. Well said.

All right. Well, on that note, I think it's about time to transition to questions. Thank you all for doing such a great job on the first part of the panel. And without further ado, let's try to get this slido working. Excellent.

All right. So, it's easier if you read it and we listen. Yeah, definitely. Let's not break necks here. Um, all right.

So, first question. Good one. Do you think that Mika's dlisting of decentralized stable coins and non-compliant coins like USDT is a first step towards a CBDC? Dangerous dangerous question. Dangerous question.

And maybe if we want to soften the intro, how do you view the D-listing of USDT affecting your businesses in general before getting into the CBDC comment? Well, obviously not good. um every D-listing is you don't want to see when you when you're in a growth market, you want to see listings, not D-listings, right? And when especially you see liquidity leaving or pair trading or everything that's surrounding that uh those are not good signs. You want to see the opposite of that.

And it's not only I think it's the regulators as well that need to um uh rethink that and and and see why are are they delisting um the first part of the question I don't think it's going to create a case for um uh but I do think it should create a case for rethinking the regulatory framework. Great. And from the centralized exchange side, um yeah, I can I can also second that because whether we like it or not, uh global crypto liquidity is still very much denominated in the USDT. I think also in the recent uh weeks um we have uh heard Tedar's view as well that they they just decide not to comply with Mika. Um I think this is not also not going to uh be very influential for them.

uh the European market is uh still small enough for Tedar to be successful elsewhere and I think it even uh that it also needs uh as you mentioned a revisit of approach from regulators as well. How do we benefit our own market more by attaching it to global liquidity or trying to protect our own bubble of liquidity? I think to build on that um the word yesterday was used that stable coins are backdoor CBDC's and I really like that because it actually hits the nail on the head. Everyone's scared of CBDC's because they say, "Oh, but I can be blocked or or I can be tracked." Yeah, if you use a stable coin, you can also be blocked and you can also be tracked because they can blacklist your address and lock your funds.

So, it's you're going to be using some form of regulated fiat on chain one way or another because you already are. Good summary. Perhaps moving on to the next question. This is more targeted towards Darina. Uh, can you share more about what the regulator requires specifically in regards to safeguarding the assets of clients?

Um, yeah, absolutely. uh so I think this aspect is also being targeted by multiple uh sides uh with regards to regulation also mika but if you heard about DORA the digital operational resilience act which uh imposes extremely strict rules on on the management of your own internal system starting with with security with access control if you outsource how do you screen those parties what controls you have over those parties which are extremely relevant for centralized party using third party uh custodians as well. Um so definitely the control framework and your governance around how you manage these funds uh how you ensure the security the safety the proper uh need to know basis to any information with regards to how you perform your custody. Um so a lot of these uh governance rules are imposed. A lot of rules are imposed already when you start uh the contractual process such a party and you really need to do your due diligence that your funds are going to be at the right place if you're using an external custodian or if you're using any internal proprietary solutions uh that you have uh extremely well vetted and good security around how you manage funds and private keys.

Thank you, Darina. And thank you to all of you for joining me on this panel. We are just about running out of time here today. I do see there is one more question about Dex's as mixers. Um, if you want an answer, I'm sure you can find JJ somewhere around here after the panel.

I was worried I was going to catch for that. And thank you all very much for joining me here today. [Applause]