Fostering innovation amidst regulatory hurdles│Panel│ETHDam 2024

[Music] P I would like to invite two regulated entities to come to the stage and let's have a conversation about that particularly around how they view it so I'd like to invite Lex from cyber Capital woo I think you can sit on the sit on the end over there and Ela who's joining us from coinbase [Applause] uh I am going to wipe the questions from slido for now um and uh we'll we'll pick that up um at the end of this uh but please could you give a very brief introduction of yourself and also a fun fact and Philip you just have to give the fun fact um well first of all thank you for having us exciting to be here and my name is Ela kkin I am the contract director for coinbase for the nordics and the Benelux specifically the nland that we care a lot about um coinbase is not the biggest Exchange in the Netherlands um but we are one of the most one of the biggest exchanges globally we like to think of ourselves more than just a trading platform we're more of a onstop shop for all things in uh into web 3 um we offer solutions for uh for the trading Community obviously on the simple side Advanced side but we also have a suite of solutions for the institutional part of the business developers creators you name it um we are available in over 100 countries have over 3,500 employees and a fun fact about myself we were talking about it earlier we had a couple lined up um but given the amount of chatter about North Korea I've actually been to North Korea not not well employed at coinbase are trying to get funds off platform um but on like a personal trip about 13 years ago which I won't do again so bit random probably not the one that I was going to give but here we are funny nice thank you I like that fun fact random really random yeah um so I I can almost previewed my some fun fact earlier like I actually first got into crypto because I heard of the Silk Road which is everyone's like oo but I'm an economist and I heard about this and I was like huh that changes the game like that allows something to be done that you can't you couldn't previously do so you think it's good or bad I was like I got to go check this out logged in and I was like whoa this is insane and what allows this to happen Bitcoin and so from that point that was my entry route into just realizing how radically this technology could change the world for good for bad like you know but it was just changing right the game had changed so that was my fun fact my entry in thanks for having me nice I'm Alexander warheim CEO for cyber Capital Europe's oldest cryptocurrency fund as we like to repeat uh soon to launch a second fund and uh fact about me is that uh we were talking about my background I worked for um maril Lynch Leman and a hedge fund before 2008 and they all collapsed due to Leman uh in 2008 but the fun is that I seem to have broken that sequence so um all the companies still exist and and I keep to uh I intend to keep it that way uh I um joined because I thought wow I want to learn this is a great industry I want to be in there I want to learn and experience and help with my experience and the fact is we are in the regulatory space already that um I'm actually spending 50% or more of my time talking to lawyers Regulators all the stuff that you really want to keep small is now getting bigger and bigger yeah yay to the Dutch Central Bank and the AFM um cool well thanks a lot uh for being here again and so my first question and it starts with a statement is that regulation as we all know has been a sour topic globally in the blockchain space for a long time a really long time uh but now Clarity is starting to come in different jurisdictions and especially here in the European Union we have uh MAA uh that's now coming and so there is this regulation that's now coming into force and I wanted to ask you ask you all to give a comment on what are both the positive and the negative consequences of increasing regulation whoever wants to go first go nuts yeah happy to go first um at coas we wholeheartedly welcome regulation regulation first is sort of one of our core principles and values and I think the panel that we earlier had around the responsibility that the large exchanges have um holds very true to that so regulation yes uh MAA we are super super excited about as well and we're actually proud to see that like the European Union is again setting a golden standard for introducing regulation that has been shaped with industry collaboration versus what we're seeing in the US where regulation is a little bit more exactly forced through and well shaped through enforcement little that way um no and and and and why to answer your question bit more directly like what are the positives of it like first and foremost it really un it enhances Market understanding with both the retail as well as the institutional um investment Community clear regulation provides Frameworks that give people that Clarity and that transparency that is is required to make very much informed decision making it also signals maturity right like it shifts that perception of crypto fundamentally being seen as something very speculative to it being a legitimate asset class um and I mean 5% globally of people are already holding crypto like in the US 52 million people hold crypto that's five times more than the number of electric vehicles that are on the road right now and also here in the Netherlands more than 2 million people already hold crypto so again this regulation coming in it just just solidifies it it's here to stay um and finally it's going to drive growth for the entire industry right trust equals at well at some levels and depending on where you are within your crypto Journey that confidence that it's the right time to participate so we'll see more investment and therefore growth coming into this space so I think those are the positive I would say on the negative side like for smaller players and companies that are very early in their Journey like regulation is complicated and it's evolving and really being able to interpret a lot of the guidance in a clear way that helps you build a business that isn't particularly easy um especially if you don't have the resources to to get that right from the outset so it's for smaller players it's a little bit more difficult but I think getting it right like regulation can also be a catalyst for growth and Innovation despite where this conversation might end up in a little bit but yeah that's sort of how I see it Alex andex yeah well regulation is key I mean we we need it it's true um otherwise it's it's the wild west right so that that's that's not the issue what we notice is because we're already for so many years into the regulatory space and Mika will not be different any different from that is that actually a lot of players actors not only on the investment side but also on the regulatory side on on the lawyer side are not really experienced in cryptocurrencies which generates fear fear of not knowing which generates rules that are simply stupid or much too too too strong um that actually hurts uh let's say good actors on the investment side that say hey I have an inheritance yeah but you can't prove it so get out um and um that that is what we notice so fear and and so we have we need to have patience patience so that lawyers can actually um get experience that also the regulator can get experience and that the companies acting in there can afford uh the patience because indeed as a smaller player you're spending enormous amount of money on lawyers T analysis ain't cheap Y no and the fear is not not not the fear of missing out it's the fear of what happens if I get involved in in that regard Philip anything to add I think I honestly you probably covered it both of you PR well but I'd actually just emphasize this point of you know Regulators do take their time to come and understand this and that's because crypto isn't like often the number one thing on their to-do list and also like how many of you who live in crypto truly understand everything that's going on like it's very hard and so actually being patient for the rules and regulations to be made is important because that space between the technology starting and getting like a landmark piece of legislation like Mika means that actually we can go and experiment and work out what is right and it means that there aren't regulations that suddenly come in and like stop you from doing things and that's why I think there's been this journey like AML you anti-money laundering regulation applying to crypto that was pretty simple and early because people were like oh this is just money moving but everything else that makes you know has been added on top has taken some time because they wanted to understand understand what is the peculiarities the specificities of crypto and how should they make the right rules so I just sometimes want to push back when people say hey we don't have the right regulation and that's stopping us from doing things regulation can stop you from doing things too and so kind of go experiment talk to people and that means there'll be better regulation in the future and it'll be the regulation you kind of need rather than just regulation that says stop doing this yeah and I think I would also build on that because you're right it can take a really long time for L St to come into effect but then once it does things can actually move really really fast so in the UK for example soon a couple of years ago made a really big statement that he wants the UK to become the global crypto Hub and an existing regime which is called the financial promotional regime which has applied to Tre five for a very very long time as of October of last year actually ended up scoping in um uh digital asset service providers and the decision was made that that would come into effect within six months and guidance ended up coming in super super quickly and as centralized changes that had to adhere to that new regime and be compliant by a certain time like figuring out how to interpret that guidance that wasn't easy and straightforward and it was actually a very short amount of time in which we had to make some very informed decisions on what what does this mean and how do we apply it like they they basically see a financial promotion as an engagement or inducement to engage in a financial activity but I mean what on earth does that mean right I think about that as an email or an ad but realistically the way the FCA looks at this anything that a UK consumer can see so therefore the website of the exchanges the logged in experiences even their App Store listings are considered to be finantial promotions and the guidance then says everything has to be fair clear and not misleading what does that mean right like does that mean I have to provide a time frame to every to every single trending asset that I or how do you interpret that and guidance coming in so late but having be having to be compliant by a certain time frame it does happen so I think being aware of how regulation is shaping and what it eventually might end up looking like will help people long term to make sure that you build the right type of business really from the gecko yeah yeah my mom I was so annoyed there someone in in the UK they said that one of the government institutions says that it's all gambling and then my M was on BBC and my mom sent it to me being like look crypto's all gambling and I'm like no but then they they released a statement against it but of course the BBC didn't publish that so it's months later well if I may add to that the um head of the Dutch regulator actually called crypto not so long ago a casino yeah so that tells you something about uh education need to be done can we get another [Music] boo um that's from the audience not from you guys it's okay um so that is where [Music] um I want to change a little bit and talk about privacy this is a conference about privacy and I think a lot of people in this room they feel like because of Regulation privacy in crypto is effectively being destroyed that's uh that's the most simple way I can put it uh we believe here that privacy is normal but ultimately because of Regulation it might get to a point where it's becoming impossible and I think the people here are trying to build the technology to make sure that it never becomes truly impossible to stay Anonymous and and be private um but that's where I think the question I would like to pose to you is how do we see the adoption of privacy and privacy preserving technology in a regulated environment and I think Lex I'd like to start with you because I think you have an interesting viewpoint on this as a fund yeah well we are already hitting walls uh I have to say so this is not about the in chain uh discussion that we just saw but I'm talking about hey we have clients those clients have to be on boarded and then we put in a special uh place in the kvk for not everybody to see yet because the uh European legislator has said for privacy reasons gdpr uh it's only visible for certain uh uh let's say companies like Banks or Regulators or but we are very very aware of when that changes we immediately have a privacy breach for our own clients right that that's unacceptable and and that places our well our organization Under Pressure because we need to think of how are we going to deal with this should we move jurisdiction or not very important uh stuff on on board meetings um so we're seeing the Privacy issue not only in the case K but uh when Banks do CDD kyc they go all in uh so we're seeing it different levels and there's no room for discussion so um U if you add to that what what is might happen on chain later then it's going to hit us from different areas and I am not that hopeful to be honest um I wish uh there was a way where we could preserve all I mean there are things that you can do as a company you can change jurisdiction you can decide not to abide by the rules but that has a price so um very difficult subject yeah and again to the two of you how do you see the adoption of privacy preserving technology in a in a regulated environment so like for me it comes down to like how comfortable are people having a counterparty where they can't see where those funds came from and like regulation I think formalizes that but I think it's also like a slightly deeper question about like what risk does that business want to run so I think what I'm saying is you know regulation will really enforce that and say Hey you know if you need to know the source and destination of funds and if you can't do that then actually that's something you can't deal with um but I there's almost like action before regulation where people try and work out their own personal policy or their business's risk profile how much of this am I willing to accept first is not um and so as we see more and more privacy enhancing technology like that I think is the debate that I think we need to work out like how can someone say okay these funds I can give some guarantee that I check them on the way in and then I mix them all together um and so when they come out we can say we don't know who the source of these funds were but we do know that at least none of it was elicit at the time that we've grouped it all together so I think like that's it becomes a slightly more complex conversation it's not just hey this person is making a technology that makes everything private privacy enhancing but are they also doing you know some check first so that they enhance the Privacy while making it compliant regulation probably won't drive that for a while because that's complicated question but instead people in the industry can go what level of risk am I comfortable with yeah it's a complex topic isn't it like there's obviously the perception that regulation like the travel rule fundamentally destroys privacy it's probably a bit more Nuance it doesn't completely compromise it but I think it's important to remember like the travel rule was written before crypto even existed and it doesn't include the provisions for emerging technology like BL sorry uh does everyone here know what the travel rule is but show of hands if you know the travel rule okay maybe we can explain the travel rule yeah financial institutions are responsible for sharing informations when funds are being shared over a certain amount to one and another we fundamentally believe that there is a way forward by probably really strong industry collaboration on Innovation so that Solutions are being built that on one hand ensure like we remain comp compant with regulation like the travor loose but on the other hand very much still um protects your user security and privacy so I think a good example of that is is trust in case you are not familiar with that which stands for travel rule Universal solution technology which is an industry driven driven um um project coinbase was part of that as well that is exactly trying to sort of achieve that but it is complex um it's a very fine line to balance yeah thank you um and on that fine line do we really think that in this day and age regulation is really protecting users because I think people here believe technology protects the users I hold my private Keys No One can with my for lack of a better term um but that's where I think uh yeah is does this ecosystem really needs this regulation I I think this community definitely like knows how to use their private change and like control their own but I think there's a lot of a lot of people that are also doubling in this space that are not as educated and as advanced so the fine line there's a very fine line between necessary regulation and Regulatory overreach right I think the panel that we just had well was actually yeah the panel before you um made that really clear like it's really important that consumers are protected against fraud um that you do create a Level Playing Field field and as long as regulation is shaped to fundamentally address the legitimate concerns that exist fantastic because regulation will end up creating trust and Clarity and we'll see more participation which fundamentally is good for everyone that is interested in place within this space but then you've got the overreach side as well like when regulation becomes way too stringent it's going to limit Innovation you see Innovation Going Underground trust reduces investment will start reducing as well so it's a really fine line um and that's why it's important that regulation is shaped in collaboration with the industry um so that it doesn't hinder Innovation yeah I would like I think almost the thing to realize is that most people's experience with crypto is like not on the blockchain and increasingly it might just be via an ETF and so it's like a very radic like for the majority of people's experience like almost these questions sort of don't apply and we're like that's a little sad um maybe one day we'll get you know people to use more onchain solutions but like there it is such a big leap like to for most people for you know Jonathan's mom to understand it's not gambling there are these things that can like it's so that's the maturity that we need to do like I actually don't think that's regulation that really drives that that is like customer experience it's ux it's making the technology just kind of flow through once that's ready then I think people can go down and play um like don't be motivated by regulation to improve that experience be motivated by driving greater and greater adoption to improve that experience like normal people won't come if they're going to lose stuff um they're going to stay in the ETF and that means crypto kind of stays a little bit boring like that so if you want it to be more exciting Don't Wait For The Regulators think about how you build that in responsibility in a way for me I mean regulation yes it will protect uh certain individuals against certain uh let's say events um it can also um smother uh Innovation it can it can uh it's a smaller Commercial Success it has really a flip side as well uh but with good actors on both sides it will it will evolve it will it will uh create something where everybody can invest safely into cryptos and that's exactly I think what we want not only the technical guys that really don't need it but also Mom and Dad want to put something apart so I'm a I'm a big uh fan of U good actors on the uh on the other side as well cool well thanks a lot for sharing um we're we're going to switch over to the audience questions um and just jump into those if that's that's okay with you I have other questions but again the people and all the people that are coming over this whole weekend have been here for you so um if you got any questions please go to the slido and start up voting just like Reit Reddit um I'm going to start with one uh Ela this is for you what's your take on cbdcs don't worry I'll read them out to you this is the most uncom it's not comfortable to do that yeah cbdcs there's a I am not the expert on this particular front um my job is quite but yeah cbdcs there's a place for them and again like regulation around cbdcs um is going to ultimately be able to really realize the promise that they do hold long term cool you guys want to say anything about cbdcs well I mean the risk is the Privacy part right yeah I mean um if I go to the grocery shop and Big Brothers seeing what I'm buying and then uh sayy uh say hey he's buying uh he's buying stuff that's not good good for him and and his health insurance is premum is too high I'm going to send that's not what we want we want to stay free so I see a privacy risk yeah uh the next question is technology goes at 400 kilm an hour I love that there's a unit on that um while regulation's at 10 km an hour as brackets as it needs to be but the two are never aligned especially in defi how to resolve this GNA give that one to Phillip like I think that's where like my the two points I raised earlier of like don't let the North Koreans launder money and like don't steal or lose your customer funds that's going to those are the main things The Regulators are concerned about so you can kind of take that on a self-regulation and like keep innovating um so there are some like basic rules as it were of the road to stay with um and then I think the other like maybe this is more of a personal opinion uh like the reality is like that's why the US has their model of enforcement right because they can never predict what's going to be good or bad before the fact they're just going to wait until something goes wrong after the fact and then go well that was wrong and you're like that really hurts as an innovator like I carry that risk um and that's why I say keep those basic rules and it's kind of a little bit like at least when you're small it's okay to ask for forgiveness later than to try and like have that permission first once you get to a decent scale then you know because the harm that you can do if things go wrong is much larger that's the time to start engaging but like remember most Innovation doesn't get off the Launchpad um instead it kind of builds into the bigger and bigger IDE ideas that eventually get us new successful things so kind of don't be scared at that smaller scale like keep innovating there yeah and I think maybe also to build on that like around the topic of self-regulation like it it likely is a good idea to be aware of Regulation from the Inception point of a certain project as well and for regulation well more specific compliance and ethical conduct to be established within an organization across all levels as well so that when the time does come like as an organization you are ready indeed and perhaps also shift the mindset of of of Regulation being like something to worry about when I'm bigger or I'll deal with it as it comes like make it a Cornerstone um which will ultimately well have the possibility of becoming a competitive Advantage as well because what it will allow is like especially if you do end up scaling up for the space to become safe and trustworthy for your customers for the partners for the people that engage um so just being I guess aware of Regulation from the outset is maybe not the worst idea no despite it not being in force yet I wanted to add to the the question that um um instead of because I heard someone in panel before saying you know you should punish uh parties that don't do their job properly that actually it's also a good idea to reward uh good actors uh so in the hope that bad actors sort of go for the reward as well well which my believe is a much better way of solving stuff like this if if we're so far behind then at least by rewarding a rewarding scheme you uh can catch up I really like that but I think the reality is you don't actually end up seeing that happening sort of at all because like as a global exchange despite probably the perception of a lot of you that like well first and foremost like a fundamentally agree that we should be held accountable for ensuring that we because of the size that we are for for keeping our customers fund safe Etc but I think a lot of folks don't actually know about the amount of fraud prevention measures that we do have in place and the work that actually already happens but when you look at for example how some of the more traditional institutions Banks like look at exchanges like us there's just a blanket cross across all of us right in the UK like Banks vary the limits of the amount of Fiat that you can actually deposit onto a crypto exchange or fundamentally block it and they don't look at well Exchange a is doing that exchange B is doing that and actually there's a whole bunch of like terrible players out here that aren't doing the right thing po big strip between it like organizations aren't WID listed or actually to your point positively rewarded for the efforts that they are making um completely right but but one can hope right I mean you we need to to give ideas we need to think we need to talk and uh to stay positive so that's why I'm still a fan of it I'm sorry my head all I'm thinking about is defi is reward wed by tvl and green candles baby um okay uh these are the last two questions and then we're call it it here so um I think what I really love about this question I'm going to preface it is that the reality of what happens in blockchain is if someone gets hacked or someone gets ruged pulled and people start losing money they call the regulators and I think that's why it's so important to have these discussions about regulation and compliance and privacy because there is not a right answer it's just how we make the best with what we have and protect users and so on that obviously we spoke about Leman Brothers you mentioned it and the question here is was 25 years enough for SPF we just do yes or no was 25 years enough for SPF sorry s bagman freed the FTX guy with the curly hair League of Legends I get it well I I um no but he had actually great lawyers great regulatory lawyers so insane no I mean not a judge but I would say yes he was held accountable yeah in like a serious way 25 years is yeah what he's going to get out in what 2018 good behavior that's what I wor about I don't know I I want to mention this at this point as well it's like yes Ross Albridge was mentioned yesterday right he dedicated the talk to Russ albd and I think that's where yeah it does call into these bigger bigger discussion questions on are the right people also being put away in that regard so I think a nod to that um the last question uh that was up here already was do you think giving individuals so many responsibilities when making transactions and using onchain tools have limitation in use have limitations in usage so I need to make sure I understand that does someone want to shout what they're trying to get across with this well someone's interpretation of the question I mean I could try basically doing stuff on chain is hard and that limits adoption maybe and I think the answer is yes yeah fair enough um okay I'm going to ask this question um if you're okay with answering it is uh why do you think the SEC doesn't really protect consumers and more and and more protects the state his cor of trfi one could say they have a political agenda um and they will probably say that we do everything to protect investors but those really don't combine well so there is an U there's an there's a problem intrinsic problem there um well the the whole I'm I'm I think El you're you're much more into to SEC than than we are um but it's obviously it's obvious that they're not a party that that is willing to have the conversation right political political agenda overrules everything yeah I'm not an SEC expert but I think it's most of you are probably aware that we're in like an active lawsuit with the SEC right now and it's it's a very complex relationship the the the incentives aren aligned um fundamentally what like the conversations aren't collaborative let me put it that way um I think that looked a little bit different a couple of years ago when we first filed and they obviously approved hence why we went public but today it's like we are trying to be a reasonable player we're trying to help shape what the future looks like but it's um it's it's complex I'm not I'm not an expert um on that particular topic but I think you articulated pretty well uh philli last last comment if you have any I guess I'd say that's how to put it if I was thec I would actually approve a bunch of ETFs because at least then everything would be very much in a world that I understand and I kind of feel like that was almost I do not know but it feels like that was kind of part of the strategy um to turn crypto into something that they really understood and then they could protect investors around well as we heard and we're about to have uh some more on stage about l2s as well is ETFs are apparently the new l2s so thanks ever so much for joining us uh today for having us [Music]