Crypto: Time to Grow Up?

[Music] thanks Vin so crypto time to time to grow up I um it it's interesting we're having this panel a week after uh a big binance settlement how many people are familiar with uh the binance settlement from last week so a decent amount of the the audience um $4.3 billion fine uh CEO pled guilty uh to uh anti-money laundering uh sanctions violations and the market has rallied and I think the the key element there is that this was a um a a removal of an overhang and a key maturation point for the industry I'm Seth Gins managing partner at coin fund one of the largest asset managers in the space we have a great panel here a lot of different perspectives maybe we can go down the uh the panel and have introductions and then we'll get into some interesting questions Basel hi everybody I'm Basel Asar co-founder and CEO of midchain for a regulated multilateral trading facility which is an exchange in a custodian here in adgm we're practically part of the furniture we've been here for the last six years and it's nice to see that the conference keeps growing every year hi Dan tapiero uh found of tent Holdings and one Roundtable Partners were growth Equity Fund that invests exclusively in the blockchain crypto web 3 world we've invested in 24 companies uh in the last three years deployed $ 1.2 billion dollar um and I think are hopefully going to be part of the growing up of the crypto world yeah thanks Seth my name is Simone man I'm the CEO of elliptic and we pioneered blockchain analytics for anti money laundering purposes in crypto uh this is my second edition of uh Abu Dhabi Finance week great to be here great thank you Seth and thank you to the entire uh adgm and AD FW crew we know there's been a a lot of work put on uh to put this event up my name is AJ Nelson uh co-founder and chairman of rain uh rain is and was the first regulated crypto uh exchange brokerage and custodian here in the GCC we first got licensed uh in Bahrain with the Central Bank of Bahrain in 2018 and we recently I just got our full license here uh in the adgm with fs and are now able to serve uh customers here in the UAE with a local bank account which which is really exciting so I I started with the assertion that we are growing up and you heard AML compliance regulation a bunch of times as as we went through intros can can each of you talk a bit about what binance what the binance settlement means for your business and and how it ties into how you're building compliant regulated businesses so I think from our perspective we started out our journey even six years ago thinking to ourselves if we were going to attract institutional Capital into the space which has been our business model that we had to be compliant we had to take all of the the traditional Finance best practices and adapt them into our industry to the best of our abilities and partnering with as many of the best service providers that we could find who had shared that philosophy with us and so what this means for us essentially is it it certainly does help us answer a nagging question that has always been coming up on on our board at least and I'm sure with many other um regulated virtual asset service providers is you know it finally happened there is enforcement action being taken and the thesis that we've all had which is going regulated first is going to be beneficial in the long run is starting to play out in the way that we predicted yeah I um I see it a little uh differently and that is that the the not I wouldn't call them Bad actors but the the businesses out there that um aren't doing the right things won't attract capital I mean we passed on over a 100 deals in the last 18 months including thank FTX three times and Celsius and blockfi um you know when you do the diligence um and you really do the work uh some things stand out uh and uh hopefully our Capital um will be allocated towards those those good actors also going forward so I think it's a matter of necessity yeah absolutely Sim I think one of the things we need to do is to put this into context and it certainly feels like a watershed moment for crypto but when we look at broader kind of financial services regulation and enforcement this is just one moment and the US Regulators in particular have been doing this kind of thing for decades you know if we look back kind of 10 20 years this is this was sort of almost Common Place um in traditional Financial Services we saw something like A9 billion fine with BNP par bar um almost $2 billion I think with HSBC you could name many others you know Dana Bank Deutsche Bank HSBC so I think we need to see it as part of that overall narrative and and and what this represents is not something that's necessarily happening to crypto it's something where The Regulators are saying we will continue to enforce and encourage accountability and transparency so I think from from our company's perspective from the industry's perspective it's really important that we look at it like that and take the opportunity to say we're being regulated like the traditional Financial Services industry which gives us an opportunity to grow up and on on that topic and sorry to jump in here C can you talk about elliptic's tools that that drive that transparency and and compliance and how it's different maybe from how that transparency and compliance would be dealt with in the traditional Financial world yeah very happy to and you know you're drawing out a really key point there which is that the transparency of crypto we need to see that as a feature not a bug right it it does give us um a significant benefit when it comes to anti-financial Crime it allows us to trace provence of transactions all the way to the Genesis block if we need to and that allows us as an indust industry to actually almost by Design have uh means of value transfer that is more compliant by Design and I think the more that we can lean into that together and and really embrace it as something that's really positive um we'll be able to actually innovate kind of past this moment faster than the traditional Financial Services industry was able to and you know elliptic's been around 10 years this year which means we've been providing products and services and tools to promote safety and transparency in crypto for a decade yeah and you know we've been on that Journey with some customers for a decade and and I think that's also really important for us to remember you know there there have been businesses in this space that have been taking that approach even before any kind of Regulation existed anywhere in the world the the Bad actors make the good headlines but but this transparency element it's such a key differentiator for building Finance on crypto rails AJ from from a a uh compliant building a compliant uh exchange perspective can you talk a bit about what the implications of some of these headlines are for your business absolutely to to be very direct it's uh as Bassel was saying it's it's fantastic news um for for companies like rain for companies like midchain you know the coin bases of world if you will uh when we started when we started our Outreach in contact with The Regulators you know going back to 2017 with the Central Bank of Bahrain uh you know going back to 2018 with adgm you know it took us two or three years in Bahrain you know to establish a framework to get a license you know here in in Abu took us you know almost five years um to get a get a full license you know get the the local banks you know the local payment processors all involved and educated and during that entire process uh you know while uh we chose to go you know when we think about our company you know we thought about a 10 or 20 or 30y year Horizon right and what if you look at the traditional financial markets the regulated exchanges you know you have to be able to put nearly an unlimited amount of money through the system right to be able to to create a profitable business so when we when we looked you know back in 2017 it was very clear that we had to take the regulated path as opposed to the unregulated path and we knew that the actors and the companies that took the unregulated path you know they they would get a lot of short-term profits you know they would be able to release features uh and products much faster than us but the longevity you know is really what builds trust and it was honestly music to our ears and we think it it like should have happened you know some time ago if we're being honest and as as Bassel was mentioning you know very difficult board meetings when when you have players you know or a player that's able to kind of brazenly you know do whatever they want um for for quite some time and break all the rules and break all the laws uh and trying to compete against that is very difficult so uh it was music You Know music I think to to our years and I think the the markets are reflecting this yeah if you know if rain or or mid chains had a publicly traded stock I think our stock would have gone way up right if you look at coinbase's stock you know coinbase has gained I think some 10 or 15 billion in market share in the last two weeks because of all of this yeah a bunch of you talked about multi-year Journeys with The Regulators is that changing are you seeing obviously not Chang off of binance a week and a half ago but are you seeing a a willingness to engage more quickly to recognize the fact that being compliant is not easy as a bunch of you pointed out and um but but it's what we want to encourage and and therefore there's a need to um move quickly maybe bosel yeah I wouldn't say it's not easy actually it is easy to be compliant it's an it's a conscious Choice all the infrastructure from traditional Finance exists to support that choice what makes it difficult is when there is I think a lack of awareness in the market of who is actually compliant and who isn't and the advantages and disadvantages that one side or the other might have on the table I'm sure the the the panelists can can talk a little bit more about that point as well but that's been my experience over the multi-year journey interesting then are you wi within the 100 companies that you've looked at recently are you seeing um any shifts between the the businesses that are kind of outside of the the core heavily regulated areas are you seeing more businesses less businesses go into those more highly regulated parts of crypto yeah I mean I think uh the binance story really you know says it all and I think uh it it sticks out a little bit I mean it's the US and the US has U been very aggressive um the previous panels were talking about different jurisdictions like UAE Etc Singapore Hong Kong uh that have been more clear in terms of their Frameworks um but I would say this I mean we have a a board representation on 11 of the businesses we invested in and so we do see uh growing up uh as you know this panel is titled um people really are focused a lot more on governance on doing things the right way um and and I would say that not doing things let's say the right way or cutting Corners ends up restricting your potential growth and so it does there is a bottom line to this you're being rewarded for taking the right path by the market and so um you know I think that's setting the tone I mean I don't know basil seems like you would agree with that yeah so yeah AJ Simone do you want to uh to to comment on whether you've seen an acceleration in your ability to to engage with Regulators or yes so from our perspective we're certainly seeing an acceleration in our engagement with businesses that are regulated or trying to become regulated but it again as I say was saying earlier this is just a continuation of a a longstanding theme that we've seen we're starting to see some of that accelerate I think one of the things we're going to see in the digital asset space in the next year or so as a result of this taking place is a bit of a slowing down in order to speed up you know not universally some businesses are already taking that approach as we've talked about taking a long-term view investing in responsible growth but we're going to see a leveling of that playing field now and so we are definitely seeing some businesses come to the table because they are now appreciating that compliance is not an option it's the only option yeah and I do think that that will as I said let level the playing field out at the same time we're going to see an unleveling of the playing field in a different way I think which is that as regulations and expectations get clearer the traditional Financial Services industry will step forward because they have almost an unfair advantage to compete in a highly regulated environment they have been doing this for decades they know how to do it better than anyone and so I think that is the shift that we're going to see over the next 12 months you know I would you know I think the two worlds will eventually sort of meet in the middle kind of thing um I mean originally um you know the space has been around almost 14 15 years and I think originally people thought that this digital asset ecosystem would grow up on its own sort of separately in this little world and when it was worth 50 billion or 100 billion or you know maybe you know that was the right framework but now you have uh around2 and A5 trillion dollars of value sitting in this digital AC so all the value of all the equity and all the value of all the cryptocurrencies and it's just too big now it's just too big um you know when things get large you need to manage them yeah you need to have proper leadership um so all of those things I think um um are going to help you know acknowledging that you're going to help growth going forward even more well and I love your focus on governance yeah right and what you're seeing at at the board level and I I think to Simone's Point that's also the governance of a lot of the service providers becomes a a gating factor for traditional Financial engagement with crypto what what are some of the other big gating factors or what do you think really opens up the the the door to uh traditional fincial institutions engaging um with crypto in a more significant way maybe bosel do you want oh Dan go ahead well I was just going to say I mean for a lot of people it's just philosophical and then age of course um but Larry think has done a lot here to help us out um everyone is aware of his about face and I think most people think he will uh get the ETF both for Bitcoin and ethereum and for at least Americans and you know the US still hold holds a vast amount of world wealth uh I mean that was a big signal we've seen the response in the markets but um you know the minute that people can just push a button and in their Equity account the exposure shows up then they start talking about it at you know parties and uh you know out with their friends and then people's minds begin to open up more so I think it's just a matter of time and by the way one of the key unlocks with the ETF is the fact that you have a bunch of service providers hand chosen by Black Rock going down through through coinbase executing and custody that financial advisers don't have to trust they don't have to be focused on or or they have inherent trust in them they they don't have to question their their ability to trust yeah I mean that's the great point is that companies that are in the gray zone or not focused on this they will see they can make more money by following you know just a modum of the rules that are out there and so I think again that's going to be the motivation right yeah know B what do you what do you see driving more financial traditional financial institution engagement so I I want to bifurcate it for two things one is traditional Financial institutional engagement and then nonfinancial institutional engagement because I think these are two fundamentally very different um areas at least that we've had some experience in over the years and on the financial institution side compliance has always been the focal topic which is is incredibly important but I think it should become more of a background subject that is just expected that it's a given and the and the focus should be on product that is built with that mind and so it then should be more about how you deliver those services and those products to The Wider financial institutions in order to to compete for that business or potentially to be part of the ecosystem with the incumbents who do have a natural Advantage um and so you know the focus should be more on product and the Frameworks should be just ingrained in our minds as part of the rules of of the game let's say and then for the non-financial institutions they don't even assume that they understand how to be compliant in this space they just want to know that yes can check the box you are compliant I'm going to rely on you fully and then I'm only going to focus on product what is your product what is your service and that's all that matters so I think what we need to get better at is Building Product for the sake of product but also Building Product that accounts for at least in the background the things that are truly expected of us as an industry and and just for the audience what's an example of a non-financial institution that that would be working with mchan so I would say where I think the majority of the adoption that's going to happen for the next generation is is going to be through video games um it's going to be gaming assets and I think as soon as these gaming assets become transferable and tradable and and there there a market develops in them they now become Financial products and I think for the younger generation to get comfortable using wallets comfortable trading um and then firms to eventually get or an ecosystem to build around this this financial product um is going to actually help promote the growth of the industry in the non-financial sector naturally yeah I just want to say one thing about the traditional guys having an advantage maybe in terms of regulatory um and in processes but um very difficult for them to conquer the complexity uh and they don't they're not really built for the kind of creativity that we see in the space and so uh I don't see tredi taking over uh you know the digital asset world as I said I I I think that they could be potentially complimentary yeah well and I I think there's a um an obvious but understated complexity for traditional financial institutions coming into the space and that's 247 operations very different from markets that operate 930 to4 Monday through Friday and then you have a lot of off hours for settlement reconciliation I think that's a core competitive advantage of crypto native businesses you know what one uh interesting closing question um ties into the idea that growing up still involves keeping your dreams and and all of us on this panel came into the industry with dreams around what crypto can do that's different from the way that the traditional Financial system operates maybe starting with you AJ what are are some of the the dreams that are now on the path to to being realized what what's come into that product maturation phase um that that now is going to to hopefully take off with a more compliant crypto ecosystem yeah I'm honestly just thankful and grateful that I was born at the era I was and you know I was a little too young to be able to work on the you know on the internet when it when it came out uh but now I'm of age you know and of the right skill set to be able to work on you know what we believe and I'm sure everyone on the panel is the next biggest piece of technology that likely will be you know more important than the internet right and uh you know Simone mentioned she's been in the industry for 10 years you know I joined the industry back in uh 2014 you know I was at a small brokerage and then Kraken for some time you know we were we were all living off Bitcoin back then uh you know we we got our full salaries in Bitcoin uh we had you know coinbase debit cards we were swiping we were spending we would have never imagined that Bitcoin would have gone from you know $100 to $669,000 like it did and I'm sure you know it would only be much higher in the future and what what I think that signifies is just how powerful the underlying technology is uh I still don't think the world understands how powerful it is to be able to send money around the world to anyone uh for you know if if uh you're on the correct blockchain uh and things are optimized for literally cents on the dollar you know you can you can move billions of billions of dollars around the world for cents on the dollar instantly with no uh regulated counterparties in the middle right so that technology will absolutely change the world uh how I I think we're starting to see it unfold right and uh the you know the regulated uh trade F markets uh I think they're very good at compliance you know they they obviously are entrenched in regulatory capture they're entrenched you know in regulatory relationships um but they are many years behind understanding this technology and you know just just giving the internet uh a currency uh is is probably the most valuable thing on in the planet you know on this planet today and having the ability to send money between planets right I don't think we're going to be sending USD from from our Earth to to Mars right so it's I just feel incredibly thankful that you know we're we're in the era we are now uh with with crypto and I I yeah it's it's hard to predict the future but everything that money does and everything that Finance does you know I think crypto will do but it is it's the wrong comparison to think that crypto is eating like trade fi and finances markets you know it's it's creating very complimentary yeah it's I'd say it's even creating like a completely different one that we just don't even know yet so we're we're excited to be here for the ride wonderful and Simone we'll go down 45 seconds each of you just the the dreams that that now you're implementing and down the dreams that you're now investing in yeah sure so just to be clear I don't know that pursuing our dreams as an industry is at odds with compliant growth I think the two things are really supportive of one another um Finance are now going to be under a monitorship so they're going to have an independent third party in there making sure that they are putting in place the controls and running operations uh appropriately I have been a monitor inside a foreign owned bank in the US that was also put under a deferred prosecution agreement and that for me is part of why I do what I do now because while I was conducting that monitorship what was really clear to me was yes this bank is now putting in place all the resources and everything to be compliant but this is not enabling growth it's actually slowing things down so what's really important for us as an industry is that we figure out how how do we continue to grow but do it um do it in this different way that so many businesses have already Embrace and I think that really is what is so powerful about blockchain and that's what we've got to lean into wonderful okay quickly dreams uh freedom and Independence and um you know these are truly free markets there's no intervention you know Vis governments or anything um I mean I think that's the there's no reason why you can't be free and independent and still uh abide by some set of rules so uh dreams are still the same yeah yeah wonderful yeah so I guess in my past I used to always be in the complex side of of financial services on tradire I really enjoyed complex private Equity private credit Public Credit and public Equity situations and I think what excites me the most going forward just to keep it very short and sweet is that I'm excited to see new products we haven't thought about yet that solve complex problems but do so in a manner that provides a simple and elegant solution to those complex problems and I think that's what excites me the most wonderful thank you V thanks everyone this is a a fantastic panel growth but but in a compliant regulated way where dreams are still able to uh to to be fulfilled and and remain intact thank you very much thank