Click Once, Lose Everything?: The Future of Digital Asset Custody | DC Fintech Week 2025

All right, welcome back everybody. We're ready to get started with the last panel of the day and last but not least, we are going to be talking about digital assets custody. Um, really impressive panel here. Uh moderating will be uh Allah Rossman uh from uh Kvath Swain and we have uh Chris Cox with City, Leslie Chvkin with Paxos, Connor Mikins with Phantom, Christos I'm not going to try your last name uh with the Bermuda Monetary Authority and then uh Michael Shoul with Fireblocks. Great panel.

I'll let you take it away.

Thank you so much. Uh what an incredible way to end uh today on the protocol uh room. I think you know I'm biased but I think we saved the best for last. And as uh the sort of discussion of what this panel is going to talk about I feel like it's almost like a movie trailer. It says from institutional trust to technical resilience.

The conversation dives into what custody must become in a world where code is the asset. That's pretty impressive. Um why don't we start with you Chris? Last month you co-authored an article by city on the future of post trade custody and settlement in an always on world which indicated that clients are turning to their customers for increasingly sophisticated and a wider breadth of services transforming the role from safekeeping assets to serving as enablers to their clients. businesses as they take on functions such as valuation services, performance, measure and risk and more of the middle office.

Could you expand upon the key demands you are seeing from institutional clients from a digital asset custody perspective and where do you see the demand going in the future?

Sure and thank you for the question. Um, look firstly the report is available on City Institute. So if anybody wants to download it, it's publicly available. It's a survey of over 537 participants in the securities market and it asks them a variety of questions in the context of digital assets. A few callouts firstly it was one of the most popular topics to which people responded this year.

Secondly, um it was the it demonstrated the biggest yearon-year delta, which I find interesting even over and above topics like AI. And when you start putting numbers on it, people are talking about anticipating 10% of their securities flow being in the form of either digital or tokenized assets by 2030. And when you think about forms of digital money, that number increases to around 25% by 2030. and this geography, North America, was where we got the strongest response. So that that's the that's the survey.

In terms of where our clients are, um, you know, I I think there are a few things that are happening that are important to pull together. Number one, the technology is maturing and people are becoming more familiar with it. Secondly, we're seeing regulatory clarity, particularly the Genius Act and other forms of legislation in different jurisdictions. And then the the other thing is you'll begin to see networks and consortia emerge and it's the industry coming together and asking itself the question of how does this technology really add value to clients? So what are we seeing from institutional clients?

Well, we've definitely seen them leaning in and you can see that across a number of different dimensions. I think you know the the emergence of crypto ETPs I think uh it I was looking today is about 645 billion now that's pretty good you're seeing tokenized securities in different forms emerging digitally native bonds and other instruments and you're beginning to see that um the industry efforts are beginning to move out of the lab and proof of concepts into production ready environments. So we're beginning to get production grade solutions put out there. What does it mean for a firm like city? You know, we're interested in serving clients on a multi-product basis in every jurisdiction across the asset classes that we in we're in.

So, it's about offering a seamless continuum between the fiat world and the digital asset world and the experience I think from the digital asset world has raised the bar. So everything we're trying to do particularly in services is about trying to give clients a 24 by7 real time transparent always on experience. So we're leaning into digital asset technology. We already deploy it in city token services. We have um city integrated digital asset platform on which we're building institutional solutions and we will deploy those to clients as they come to market.

more recently and specifically in the context of this conversation and Michael and I were talking about this before we started in custody uh we recently completed an in-houseuilt digital asset custody proof of concept and that we expect that technology to form the foundation of a solution we will bring to market in the first half of 2026. So in short we're doing a lot clients are interested and it's a very exciting space right now. Yeah, we we'll talk a little bit later about sort of the the traditional finance players and the interactions with the digital native, but I think it's a it's incredible to see where city is today. Um, and I think you touched upon an important issue important thing for all of us, which is there is certainly a lot more regulatory clarity um and I think acceptance over the last, you know, six to nine months than there had been in the past. Um, speaking of that, Leslie, uh, the SEC staff of the Division of Investment Management issued a no action letter uh, last month, roughly two weeks ago, stating that it wouldn't recommend, subject to conditions, which there always are, um, an enforcement action.

They wouldn't recommend an enforcement action uh against registered advisers or regulated funds for treating certain state chartered trust companies as banks with respect to the placement and maintenance of crypto assets and related cash and cash equivalents. Given Paxos' role as a New York State Charter Trust Company regulated by the NYDFS, could you please talk about some of the potential practical implications of this relief and if it be uh possible give us a little insight into the current role of state charter trust companies uh with respect to digital asset custody?

Okay, it's on. Great. Uh thanks so much. Um and I should make uh a disclaimer first. Uh so Paxos is a state to an OC that's now laid out as the federal option for non-bank stable coin issuers.

So it made a lot of sense to have that nationwide authority. That said, even when our application is approved, we'll remain champions of state chartered trusts. Uh I think this is where a lot of the innovation in this space has happened. So I just want to make that clear. Um but to your question, I think the no action letter is huge.

It's a it's a pivotal moment I think for institutional adoption of digital assets because funds raas were sort of in this catch 22 until recently. So they had to use a qualified custodian, primarily banks, but you had banks that whether they uh were reluctant to or unable to were not interested in custody because of uh regulatory hurdles because they had legacy infrastructure or burdensome accounting principles like SAB121. So it was cost prohibitive. So there were a lot of reasons banks weren't in the crypto custody space. And in the background, you had these state chartered trust companies that were credentially regulated.

They had this infrastructure that was purpose-built for crypto. Uh and they were building up their own client base, but there was this gray area around RAAS. Now you have this no action letter. I think it's it's huge. And I think that unlocks asset managers, hedge funds, pension funds, family offices, uh, and now they can use these specialized cryptonnative custodians.

And the question that I've seen pop up is, well, why are these state trusts uh, well suited for this, right? There's been some criticism. And I think for a few reasons, one, the institutions are credentially regulated, right, by regulators like New York DFS, which is very robust. Um we have governance standards we have to follow capital requirements cyber security protocols. So it's not bank light it is bank light.

Uh we also have a totally different business model as trusts. Uh we are not in the business of taking deposits or making loans. So there is that stability there because you are not engaged in rehypothecation or credit transformation. And then finally I think it's because this is an industry that has sprung up from crypto. It again has that purpose-built infrastructure different than a bank that may be having to kind of rework legacy infrastructure and try to fit it into today.

And so in terms of practical implications, I think what we'll see is we'll see more crypto focused funds. I think we'll see digital assets and traditional portfolios and that's all coming uh into cryptospecific custodians. Um, and I think it it also this has been a good validation of the state frameworks like what New York has in place. I think that no action letter uh was an important acknowledgement that this is this is the right model to use that it's safe. Um, and then finally, I think there's going to be this interesting competition.

First, you'll have states competing. They those there more that want to pop up in this space and put frameworks in. Um and then for the banks, they're at this moment where they're asking themselves, well, do we want to seed this all to these new entrance or do we want to step into this space? And so I think there's some opportunities for partnerships, for acquisition. So it's a very interesting time.

Yeah, I I totally agree and I think you know I my personal view is you know one federal regulator is not the you know the solution for all problems and I think your competition point is great and especially since this is in many cases people have greater familiarity with this space than than some of the federal regulators. Um, so I think that's incredible and you and you see this I think more and more from the current regulators they're they're willing to sort of take that into account and and enable sort of the growth of this asset class. Um, speaking of great regulators, uh, Christos, um, Bermuda was one of the first jurisdictions to begin passing digital asset regulations going as far back as 2018, uh, which has evolved over the years to include aspects such as sandbox licenses and a digital asset custody code of practice. Based on these experiences, particularly in relation to the evolution of custody models, what trends uh what trends or developments are you seeing from an international or cross jurisdictional perspective? Thank you for that question.

So yes, in Bermuda, we do have the digital asset business act since 2018. So we have approximately, it's not seven years because between starting to implementing a processing license, I'm going to say six years of supervisory experience. Uh today we have over 20 custodial wallet providers uh that are licensed and the reason that I'm mentioning it is because we are seeing different uh shapes and forms when it comes to custodial wallet providers. We're seeing entities having leveraging their own proprietary technology. We are seeing entities outsourcing custody uh to a a third party custodian which custodian which entity has the keys.

We are seeing entities that they use wallet as a service and they provide custody. So we're seeing different shapes and forms when it comes to the evolution of the role. What I would say is that one thing that we are observing is the evolution from a and when I compare it to tradi right it's a from a more of a passive safe safekeeper to more of an active fiduciary if I were to say we are seeing the the realms converging so we are seeing a lot of more responsibilities h actually being for custodians when it comes to multi-chain multiasset management they do staking some things that we are seeing is more delegated staking so one of the questions that we're going to be asking is the selection criteria of vendors. H how do you uh select when it comes to slashing risk? How is this being managed?

Uh when it comes to tokenization, there is another there are other stakeholders in the ecosystem meaning that you have the oracles as well and then it's the responsibility of the custodian to keep track to act as the intermediary layer and keeping track of what is happening in the onchain and the offchain world. So we are seeing this kind of evolution. What I will say is that even though the role is evolving, even though you are seeing the technology progressing, I don't know if you have seen the coin FSB recommendations from 2023 and just yesterday they published the final reports after aatic review that they have done. If you have not done so, I strongly encourage you uh to read them. They are very very good.

Especially what they advocate is functional equivalence. meaning that yes the technology is changing their role is evolving uh they are their role is a bit different in today's world however the same principles at a high level apply IOS actually five out of the 18 recommendations they have to do with custody so when it comes to governance when it comes to safekeeping when it comes to reconciliations when it comes to bankruptcy remote they are the same at a high level so these things some things are not changing but it's how the technology can be used to actually achieve the same result in a different way. And another vertical that I would like to focus on is on the global and the borderless nature or when we're talking about digital asset custody uh this is quite important because uh when it comes to legal classification, regulatory classification uh we are seeing uh divergences we are not there yet when it comes to international collaboration, coordination and harmonization. This is another point that is strongly emphasized and echoed in both the recommendations and in the thematic review. Uh this is one that we are very supportive.

As a matter of fact, we also commend the US legislature because under the Genius Act, there is a reciprocity regime which is also found in uh the clarity bill. Uh it's definitely the right approach. This is the only way that we can avoid potential arbitrage between jurisdictions. uh is the only way forward and Bermuda it's definitely supportive of this approach especially if you the reciprocal status it already enjoys in the insurance sector with both the US and the EU. So

that's great.

That's great. And I think you know um as we mentioned Bermuda has been sort of leading the charge. I I hope regulators in the US sort of take some of this back uh including the the concept of sandboxes. uh but you know I think one of the things you sort of talked about the the collaboration across countries and especially through IASCO and other places it all stems from this idea is how can you come up with a framework where people can trust the the various regulatory bodies to to have consistent standards and you know that sort of ties into our next question for for Michael and Connor um there's been an noticeable increase in activity in the DeFi self-custodial digital asset wallets which often rely on novel and varying mechanis mechanisms including multi-party computations and smart contract wallets. As providers of digital asset wallet services, how do you think about the balance between innovation and custody models and the need for consistent enforceable standards that regulators and institutions can trust?

And we'll start with Michael.

Yeah. Um so I think that uh the concept I would argue that actually like a multiart computation or MPC and to a certain extent also smart wallets are not as uh any more unfortunately innovative we we you know uh for those who are not familiar with Fireblocks we provide infrastructure for the vast majority of the institutional uh space. So whether those are like banks like bank of New York Mel and cross river fintex like you know revolute Robin Hood and so on and meters and hedge funds and so about 2,600 clients now back in 2018 we actually came out with the concept of mod computation that essentially the the basic function of uh what we call custody of digital assets is essentially the safekeeping of a private key and one of the core concepts over there which is actually a pretty straightforward concept in cy cyber security is the fact that you don't have a single point of failure or a single point of compromise and there are mostly like you know two approaches to do that one is MPC or threshold signatures or multisig and they can be achieved through again either cryptography measures like MPC or uh measures like uh smart wallets uh which create a multisig um long story short I think today by the way in 2025 five. I'm pretty sure that like every custody uh solution is mostly built on top of one of those technologies at the minimum. Sometimes there are cold storage solutions that would use an HSM but it becoming less and less common and then I think that there is a question of uh standardization right so you know what we've been working for so we've been in this space for about seven years right now across all of our clients in there was there over 100 billion dollars of uh of assets so it's a lot and uh and uh you know this year 5 trillion of of transaction volume.

So what we are trying to do is really create standardization and especially work with the regulators to elevate the standards that they currently have. Right? So I do agree that uh there are frameworks that are being taken from the um let's call like you know traditional financial space. If you're New York DFS uh um regulated and you have part 500, if you are OCC, they have their framework that is basically derived from NIST and uh and maybe like you know the most advanced framework actually exists right now in Europe which is DORA but uh they kind of basically mixing and matching between how custody is being or how cyber security custody operation resilience and all that stuff are being done in the traditional space and They're trying to basically argue sometimes that the same stuff need to be done for digital. The reality and I think this is what we've learned over the last couple of years and talking about like you know all the hacks and everything that you read in the news is that unfortunately it's insufficient.

Why it is insufficient? H you can call it DeFi but basically digital assets they have two unique properties that you actually don't have in traditional finance. One is that settlement is instantaneous and there is no recourse right so basically you can't basic you can't do fraud detection in in the sense like okay the transaction occurs now like you know figure out what happens what what's going on if some if I suspect that there is something problematic I will freeze that transaction maybe I will roll back that transaction in the matter of a few hours the second that you send a transaction on chain it's gone right so that's issue number one the second issue is not maybe uh completely unique to digital assets, but you have nation state actors like uh North Korea basically Lazarus group that over the last that although in the previous decade there were journey speaking going after financial institutions the most the most known hack is the swift compromise back in 2016 but over the last several years they were primarily focused on going after crypto right and that makes it like you know very unique in terms of uh complexity and attack surfers which clearly requires regulators to come in and mandate and dictate that the standards that custodial non-custodial uh basically any form of uh uh wallet uh safekeeping uh should adhere to certain standards should adhere to certain investment from a cyber security operation and and resiliency and we've been actually doing a lot of work in terms of advocating that uh for for for the regulators that I think uh is now we've seen this across European [snorts] and other jurisdictions that this is being adopted and we hope that now as the regulatory changes happening in the United States that uh the the US regulators will be fairly quick in terms of uh adopting those uh standards and making sure that everything that is kind of built here in the US which and I think that a lot is going to be built in the US in the next uh 12 24 months is already basically taking uh into consideration uh all the unfortunate lessons right that uh we've learned in the last uh several years

that's great and and I think Connor same question to you know how do how do we sort of not stifle innovation enable sort of the the good work that's been done but providing sort of clear consistent standards that will provide trust and and insurityity for for institutional clients and uh and regulators.

Yeah. So, no, it's a great question. So, so Phantom, we focus uh primarily on consumer or userbased uh wallets. And so, a lot of our focus is creating a safe environment for uh consumers and users to onboard into the digital asset environment. And so uh to to your first issue of uh you know this um the fraudrevention models right so uh transactions are final right there's really not much you can do once a transaction is sent however there are points of friction that can be put in place before that happens right there's a lot of uh open source data a lot of like onchain sloohs that essentially can flag this is a known scammer like we you can put points of friction right so um I think for from from my perspective it's really important to not be too prescriptive on the technology used it should be more focused on uh making sure that a safe environment is created for users.

So uh whether it's disclaimer related uh creating warnings before uh actually like executing a transaction um you know and in a non-custodial environment uh people can always export their keys though right so um so we can we can create points of friction but at some point in time they can a user can just export their keys and go to a different wallet but um at the end of the day it really should just be uh disclaimer risk warnings for for users to and more of really education is really where what it comes down to.

Maybe just to add to that, one additional thing that I that is not currently in production in any meaningful way, but it's likely that in the next I don't know 24 months, we'll see some advancements in what we call onchain identity, which is basically it's got like some identity and compliance layer that will be attached to every wallet. And then I think some of those pre-checks, right, will be uh much more robust and much more stronger where we will actually know where the transaction is going,

right? I I think the topic of just making sure that it's flexible, you're not stuck in sort of regulatory cement um and adequate disclosure. I think that sort of addresses many of the issues that we're sort of seeing today in terms of confusion and understanding.

Yeah. Yeah. And just one one other thing I it' be really good to add related to smart wallets. I think it's a really really fascinating technology. There's a lot of things that can be done putting into place like spending limits on specific apps, right?

So all that stuff can be built into an app. Uh and so that that type of technology I think is is here and it's coming. So I think there's a lot of consumer protection things that are already happening without uh intervention. So it's just really just focusing on risk warnings, uh flagging and just you know just education for users. Let let's go back to you Chris.

So large institutions like city are able to offer scale, capital and operational efficiency whereas digital natives bring emerging technology expertise as the digital asset ecosystem continues to evolve and the role of the custodian expands. Do you foresee the relationship between traditional finance and digitally native firms being one of collaboration, symbiosis, partnerships or more of a a competition?

Look, I think the answer to that is is all of those things, right? And probably none of those things. It's it's not really one or the other. Um, and frankly, it's a something we've seen before, right? So, go back to earlier point firstly, innovation makes us all better, right?

we deliver better solutions to clients and that that's a great thing. Um, but we've seen it in mobile banking, we've seen it in virtual credit cards, we've seen it in APIs, we've seen it in electronic market making. Technology is definitely advancing the delivery of financial services and how we do that more frictionlessly for clients. And this is another continuation of that evolution. Um, let me illustrate that with a very simple point.

You know, city has a direct custody business. We do it in 63 countries. we have something like a 25% share of that business. Most of our clients are banks, right? So, they are both our clients and our competitors.

So, you know, I think it's a situation we're familiar with and very comfortable with. And then the other point that I do want to draw out is that we have a global multinational client base and they do business the way they want to do it and some of that is bound by the infrastructure that that they use and that is going to have an influence on the the way forwards. You typically when you get into a large corporate they have a system called an enterprise resource platform an ERP and that drives a lot of their processes and that technology is still typically end of day typically runs on batches. So instant atomic definitely has some benefits for them but the pace at which many of these folks can adopt this technology will actually be driven number one by the desire to do it and then secondly just their capacity to practically get there. So if you go back to that survey and why is 10% of market turnover you know digital or tokenized by 2030 I think it speaks to that um you know in services we're going to spend about a billion and a half dollars this year and we have been for the last three years modernizing and simplifying our technology.

So you know I think there was some statements about integration into existing stack and dealing with legacy stacks. You know, I think we're investing heavily to make sure, and I alluded to it before, that we can deliver to clients where they want to do business, the services that they want in a completely integrated manner, whether that is fear or digital asset. And that's something we're going to try and do. As recently as a few weeks ago, we turned on an enhancement to our technology here in the United States. and from a asset servicing and custodial perspective that that really moves things up to as close to real time as we think anybody in the market can currently achieve.

Um Chris's also alluded to something remember the world's not equal and it's not moving at the same pace. Here in North America I think the focus is really on crypto and stable coins. In Europe it's more micer and tokenization and then we talked about sandboxes in certain jurisdictions and that's more the Asia model. So whilst innovation is a really tremendous thing right it can lead to fragmentation more choices more providers and if you're clients that's more choices and potentially more risk so I think it very much depends you know the competition point who you're serving and for city our goal and our investment is to offer that as consistently as we can globally and allow clients to access all of these products and services at speed that they want to as frictionlessly seamlessly as possible with the minimum amount of change. Right?

Most most of our clients are complicated multinational and they actually want simplicity and trans transparency. And then just to pick up on the point Leslie made um obviously we're seeing new client segments emerge, right? Dig digital asset natives and that's exciting. That means the wallet in the industry grows and as a firm we're, you know, excited about servicing those clients, supporting them, right? We will invest in them.

We will partner with them. We will co-create with them where there is an opportunity that produces a client benefit and it's accretive to the city shareholder. So to go back to answer your question, I think it's all of the above.

Certainly sounds like all of the above. Um and I think to to to the point you were making is it's not you know it's not binary but it's important to have both the institutional the retail and everyone else tell their you know service provider what they're looking for and that will lead to sort of the evolution um that you know will suit every sort of fragment or part of the market. Um coming back to you Leslie, we talked a little bit about you know the programmable code being the asset. From a policy perspective, how do you think regulators should think about custody in a world where uh the programmable the programmable code is actually the asset? So I think this is a very sort of foundational tension between this traditional custody framework and the really novel attributes of blockchain and digital assets the things that give it a lot of utility.

So just a very high level if you think of a traditional uh custody framework it's all about bearer instruments and ledger entries right you think of you know stock certificates in a vault or gold bars in a depository and the job of a custodian is pretty straightforward right you are making sure uh those assets are safe and secure from loss and and theft and then you go into the digital asset space and for a concrete example say a custody Bitcoin Um, Bitcoin's on a distributed ledger. What I have custody are the private keys, right? And what I'm protecting is access and ability to transact with those. And I think going back to that framework, that original custody framework is really built around exclusive control. But with digital assets, there's not necessarily exclusive control.

You have programmable control. You have shared control. So then it opens up questions about well who is the custodian? What is the custodian? And so I think that is what is challenging the framework that we have now.

Um and in terms of kind of thinking forward about whether you can have safe custody, a definition of safe custody uh that is technologically neutral. I think this kind of gets at what Connor was saying before. or if you're a policy maker, you really have to be outcomes and principles-based, right? So you, you know, if I'm a policy maker, the questions that I probably want to be asking are, you know, who has the ability to make transactions? What does multi-party approval look like?

What are the mechanisms? What is the the what are the policies in place for any kind of, you know, incident reporting? So there's all kinds of questions that you can lay out that are just neutral to whatever the technology is used for custody. So I I think that's the way it's going, but it is quite a paradigm shift,

right? And I I think that you I think we've all heard this uh many times, which is just focus on the principles. if you don't sort of what you have is you have legacy laws and rules that sort of um create almost unmovable pillars as technology as markets sort of evolve. So I I really think that's a a great point where if we can focus on what we think should be the means to achieve that end and have the ends in mind, you know, those are usually the hallmarks of a good regulation or a a good law. Michael, you talked a little bit about uh you know atomic settlement and and we'll talk a little bit now about stable coins.

So they sit at the intersection of custody and payments. How do you think about building custody models that protect users and institutions while still enabling seamless programmability and liquidity across chains? And then with respect to atomic settlement, there's obviously we mentioned this an inherent tension being between being able to transfer something immediately but having it be irrevocable. And do you foresee a future where stable coin issuers may deviate from settlement finality to enable sort of reversible transactions?

Oh, okay. That's a lot of good questions to be honest.

Yep.

Yeah.

Choose choose one you want to start and I'll come back to the other.

Yeah. So we do I mean yeah we we kind of an anecdote we we did when we started Fireblocks I think we didn't fully understood that uh maybe seven years ago that uh stable coins will be kind of the front and center but actually the infrastructure we built from the get-go uh was kind of with the vision that it has to be a transactional custody or wallet infrastructure right for institutions which eventually kind of set us up for being very successful with underpinning most of the stable coin activity right now about 10% of the all the USDT and USDC is going through through Fireblocks uh and you know most of the remters and payment companies are are doing it including like stable coin issuance the stable coin issuers um with regards to the to to the few questions that we have maybe I'll start from from the end would um we see revocability built in into um the stable coin protocols. I think maybe I think Connor you you kind of highlighted that there there is this uh I would say overlap between what do you put into the smart contract that uh governs the custody? what do you put inside of the smart contract that uh basically represents the asset and there is also the intersection between them and even right now we actually starting to see models where uh being deployed into into the stable coins which allow programmability around uh revocation of transactions to be fair in the context of uh let's call like antim moneyaundering if you look at both the tether USDT and you know circle USDC they're already able to recall, revoke, burn uh those assets, right? So, in essence, it's kind of already there.

It's not very well standardized, right, for from what exactly like each issuer is doing, but it it is there. And you know, the the other question is really what are we going to see with regards to I would say stable coin uh adoption and and um how does it all work with with with custody. So our view is that every business and every market function is likely to move into some form of blockchain based money. Right? I think that stable coins definely are going to be a big part of it.

There is a question around the tokenized deposits that I think are in the early stages of uh of development. And then there is the you know the CB the word that is not allowed to be said in the United States but you know it it is actually quite popular in the views of the European regulators in some areas in Asia. I think that although each one of them carries like a fairly different market or counterparty uh risk er the the the um the mechanisms right in which uh you you actually safekeep and you transact are quite similar and therefore the requirements from the wallets is really to build an infrastructure and we're seeing it right now there is a difference between basically custoing bitcoin for a long-term investment, right? So, like, you know, if you have a Bitcoin ETF like, you know, the Black Rockck ETF and some of those structures, okay, you put it in a cold storage, it sits over there, it's all fine and good, right? Um when you work with remters on ramps and we work with like I don't know if some of the people here might be familiar with like moon bridge which is now stripe all those companies they already at a scale that they are really touching the um you know kind of theoretical capacities of the blockchains and they kind of pushing the envelope on the throughput and then what you actually need to do what we discovered is that what you need to do from uh wallet or blockchain infrastructure standpoint is really uh create dedicated teams that are really focusing on working very closely with the protocols in order to be able to originate the this throughput or that amount of transactions uh for each one of those protocols.

It works different on Solana. It works different on Polygon. It works different on Ethereum. Like every one of them is just like a very different technological approach. And yeah, you kind of need to to build that uh technological expertise to to be able to do it.

And I think that we are also by the way at the beginning of it because if the likes of Stripe and Eden will actually transfer the vast majority of their payment activity to be on stable coins and you know if you kind of following the the Stripe founders on Twitter they're definitely very bullish and positive on on doing that. We would need to be able to withstand something that on the order of you know 20,000 transactions per second which is now not something that anyone is able to do and there is a lot of technological development that needs to occur to to to get there but you know we are quite confident that we'll get there in the next 12 24 months.

Fascinating. I before I move on to Christos, Connor, is there anything you want to to add to that or

uh not not too much because you did a really great job, Michael. So I there were a point of uh discussion in the in the some previous panels around agentic payments and in how are like how do you settle those if it's a it's a fraudulent uh you know agentic payment. So, I'm I'm very curious to see how how that progresses and the and can you revoke can you pull back those types of transactions. Uh, but I think that's a lot of TBD and and where that'll land. Uh, Christos, so supervisors are now asked to oversee custody that involves keys, code, and smart contracts, not just vaults and ledgers.

From your supervisory vantage point, what safeguards or innovations are most critical to ensure that digital asset custody can be both safe and we talked a little bit about this future proof? So what I will say from an operator standpoint, from a custodian standpoint, I will repeat what I said before. If they have the functional equivalence, if they have the principles that ISco FSB reiterate, if they have it as a northern star, I think it's the right way forward. But I would like to tweak a bit that question and I'm going to be providing a bit the regulatory standpoint because I do have that I do believe that a regulator also have responsibility to en ensure that is in a position to deal with this transformative period that we live in and this evolution of the custodians a regulator needs to evolve alongside and in order to do it it's a three-dimensional approach. One it's a the regulatory framework which I will have to echo a lot of less points which I agree with.

It needs to be outcomes based. You need to be principles based. However, you need to be cognizant at legitative regulatory framework that because of the capabilities of uh the technology, a lot of things could be handled in a different way. So, it's a very interesting combination of technology agnostic and technology specific at the same time in relation to different considerations. The second dimension that I would say is resources.

And when I'm saying resources, it's both human and technical. Human resources definitely important and I not mean only a fintech team in the supervisory department. No matter how great a fintech team is, then you need to have a very capable policy department and we do. You need to have a very competent enforcement department and we do. You need to have a very competent AML department, conduct department.

You need to have people senior management when it comes to internal committees and you're going to be recommending something. You need to have people in the room that they can understand the technology. They are not scared to get their feet wet to really really understand what is happening. Really understand how the technology works and how the regulatory requirements are met even if it is done in a bit of a different way. H technical resources.

This is also non-negotiable. H if you do not have techn reg tech solution a subtext solution uh then just receiving a financial only a financial audit only financial information for four months after a year end then the type of supervision that you're doing and the effectiveness of that supervision is potentially questionable. You need to see from an AML standpoint if there if there is some movement, some forensic analytics, sentiment analysis. You need to make a AI analysis to identify patterns. You need to have a market abuse systems and controls to identify patterns.

So all these things need to be in place. And the third dimension is the modus operandi. Again, I mentioned the financial statements. These are always going to be important to understand the credential picture, the credential image of an operator. However, at the same time, it's exposacto.

The more we move towards a real time or close to real-time supervision, this is a regulator's dream. In Bermuda, we have launched uh an embedded supervision uh pilot. We are actually analyzing responses. We're analyzing findings and uh we do hope next year to potentially continue some more policy work on the embedded supervision and how potentially a supervisory model could potentially invol evolve transform to keep at pace with these interesting times that we live in and the models that we are seeing.

That's great. I I think we have we have about a minute and a half and I just want to give you guys this opportunity. Is there any sort of additional regulatory or legislative clarity that you think would really help um expand the you know the uptake of DeFi and and the work that you guys do? Michael, why don't we start with you?

Um yeah, I mean I think that the the one of the questions right now that we're actually dealing with is how tokenized securities are going to interact with DeFi. Um as you can appreciate the entire um framework of how you identify the investor how the transfer agent works in this specific case is DBD right so that's like an open topic which is basically kind of the next evolution you know from our standpoint and yeah by the way just as a side note super excited about all the work that the SEC is currently doing on this

agreed Connor

uh nothing in particular just looking forward to uh genius implementation and then hopefully market structure but yeah

uh not so much uh legislative clarity but I think for defi one vulnerability that's come up a bit today is on cyber security [snorts] and you know I think that is an obstacle for wider adoption institutional adoption and I think there's a huge role that the US government can play whether that's commerce NIST treasury other agencies can play in sort of standard setting around cyber security. So, you know, best practices around smart contracts, expectations around code audits, even just R&D around uh bug bounty programs and other kind of DeFi related cyber security. I think that could have huge benefits for the industry and you've seen the US do that for other industries. So, I think we could take that model.

I think there are different questions. It's from a regulator standpoint. It's should defy be regulated and if we see the TVL potentially we're talking about some contagion risks potentially we see some at a later stage some systemic risk. So likely the answer is yes. Then the second question is what does proper regulation what does a proper framework look like?

This is the million-dollar question. This is what we needed to see because all legal constructs all frameworks they are developed on the fundamental premise that you need to have someone to hold accountable. So in the absence of valable personality the in the absence of people in the absence of the normal actors that you have there what is the proper regulation then this is something that needs to be solved. So it's a different question. I think that in on the if I think I'm inclined towards yes on the how TBD and look I think from our side a lot of things have been covered you know f further detailing of things like the genius act and then also a little bit more thought given to the capital treatment of assets on public blockchain.

There's still quite heavy for banks to hold on their balance sheet.

Right. I think we also have heard in the past that margin obviously that'd be a big one as well. Um well I think I think that's it. Why don't we give uh our our excellent panelists a round of applause. [applause]

All right. Uh that concludes the programming for today. We have a happy hour decentralized first floor, second floor and fifth floor presented by our good friends at city. Thank you all.