Not Another Regulation Talk What Founders Actually Need to Know - Ilija Rilakovic, David Veselinovic

Hello everyone, welcome to Eid Belgrade. Uh second of many regulatory talks that we will have uh at this conference. Uh today we will have uh David Vaselinovich from Crypto Advanced Crypto 12 uh centralized exchange licensed exchange in Serbia uh founder and CEO who will share some insights on uh his path and uh their business in uh in Serbia. My name is Ilia Lakovich uh attorney at law from Belgrade Serbia and uh one of the organizers of Eid Bgrade. David, welcome.

Thank you very much.

Um, so something to begin with. Uh, you were born and raised in Austria. Uh, and, uh, you worked for many years in in in Austria. So, I wonder, uh, what on earth made you to choose Serbia as a base for your, uh, uh, crypto business? Well, I mean, um, I could tell you how I knew what would happen seven years ago that we Serbia would become one of the biggest crypto hubs in the region, but uh, that was absolutely not the case.

So, when I back then when I made my decision to come to Serbia, that was back in uh, 2017, and these were very rational reasons. Um, at that time, I looked at taxes and I looked at potential employees, staff. Um at that time I was I was uh looking to open up a uh to start a consultancy which is um uh which would be an MLCFT and compliance consultancy. So basically for high-risk industries who are looking to outsource the whole KYC banking compliance part and for that I needed IT guys. I needed IT staff and I needed um lawyers basically and and simply at that time I mean a lawyer would be like three or four times more expensive in in Austria than in Serbia.

and on top of that they would the quality would be even lower. So those were the reasons for me coming here and then it just kind of evolved. Um also I didn't know I had no idea back then that Serbia would be one of the first countries in the world and especially in in in Europe. I think only Switzerland had a had a law before Serbia if I'm if I'm not mistaken. Um I had no idea that this would happen.

uh back in 2017 when I came I wanted to start a crypto exchange but since there was no uh no law no uh no regulatory security framework exactly um I didn't want to do it because I know there's always a legacy problem if you start working in an unregulated environment and then you're looking to become regulated there's a lot of hurdles and problems that come with it so I was just waiting um I was lucky that Serbia was one of the first ones in 2021 to introduce a law and Um yeah, my my lawyer had the great idea to to um basically tell me I would have good chances that my company would have good chances of um winning a license and uh I decided to to start the process

and u how was that process for obtaining a crypto exchange license in Serbia? Can you give us uh some fun facts and a brief outline of the process? Yeah, I don't I don't know where to start honestly. Um I don't know how many people know that but during the licensing process which uh so we started it back in I think it was November 2021 that's when we started and we received the license in 23 the second license the first we from the national bank received in December 22 and then the second one second one from the Serbian SEC was in uh March 23. So the whole process took roughly um I don't know one and a half years to two years and after one year I basically gave up.

I I also moved away more or less. Uh I gave up on it but thank god my my business partners kept me going. They they still believed in it even though I didn't. So yeah, how was the process? I mean how can it be?

um regulators, they have a a certain role in in in our community, right? And their role is not to be innovative. Their role is not to be, you know, to serve us, even though we like to believe that. Um their role is to create a safe environment and to react. They don't act.

And that's a big problem when you're when you're in a innovative industry where where you would love things to go fast and easy and you want the regulator to know everything. That's not going to happen. And that's um that's just wishful thinking which is which you need just to throw away out of the window if you want to um start interacting with regulators. So regulators act when the pressure is too big on them. Right?

And if you ask me why Serbia one of the first countries uh to regulate, I don't think that they were thinking like hey guys let's be innovative let's try to you know be the first ones in Europe. No, I think that simply the pressure was too big because there is a high adoption rate in Serbia and you have a very high we heard about peer-to-peer and and and cash to crypto crypto to cash transactions and what what um how dangerous that can be for a community and I think they just wanted to regulate something that was simply pressuring them too much.

FOMO.

Exactly. Yeah. Yeah, you can call it Yeah, you can call it FOMO because um like they they couldn't even let's say they catch catch somebody, you know, who is doing cash to crypto, crypto to cash, there was no law to punish them or to stop them or whatsoever. They they had to let it go. So, I think the law in the first place was introduced to stop the the negative sides of of uh peer-to-peer transactions.

So when you come to a regulator and you apply for a license whose number one uh let's say commitment is to create a safe environment they first going to say no to everything right so um you just need to you know be persistent and um when it comes to you know some anecdotes I mean I don't even want to tell you what I went through because you would be scratching your head um but yeah I can say this much um in the in are let's say in the national bank and the securities commission like in every other uh reg regulatory body the people who really have um a large knowledge and whom you can really talk to but then obviously 80% are just there to do the their job and their job is not crypto so you got to fight with them you got to educate them I mean we we have uh on daily basis uh you know people coming from which is basically uh the police. Uh we have um tui which is prosecutors

prosecu prosecutors um we have from the from the tax authorities constantly people coming just to educate themselves you know because they heard something about crypto they have it in a case and they have no idea how it is. So it's it's a learning process and I'm happy I'm happy that we as a community in Serbia are pressuring them to do that because unfortunately it doesn't go from top down it goes from bottom up. So,

so to sum up, um don't you think that our regulators act as overprotecting parents who never allow children to get dirty, climb, crawl uh what uh what children do. So, you have basically golden cage in Serbia. You have people who might experiment something with crypto and uh in order to protect them, regulators don't allow a lot of things. uh this is basically a question of freedom and uh my freedom ends where yours start starts and whenever we have a question of freedom there will always be debate whether it's too much or if it's not enough if we compare Serbia for example let's let's do it this way we got Mika in the EU where they basically regulated to death and if you ask me about Mika in the EU yes that's an overprotecting parent um I don't even know if they know what they're doing, but basically they just killed the crypto market in the EU. Everybody is going abroad.

On the other hand, now you have uh US with Trump, you know, who is super uh like freedom and you can do whatever you want. Serbia is kind of in between. Why am I saying that? So in Serbia, the way the law is written, they have a lot of discretional power, the regulators. On one hand, we don't really like that because you don't really know what you're up to, but on the other hand, um it gives them the possibility to experiment, right?

So, they can say, um, yeah, we're not too sure how this is going to happen in in in in in a day-to-day life, but let's try it on a smaller smaller case or let's, you know, try to limit the risk. So if you ask me if they're all productive, we're in Serbia, you know, in Serbia if something happens, let's say, let's say, you know, we got FTX in the US, right? It was news how long? Couple months, a year maybe, and now you don't hear anything about it.

A case like that in Serbia,

the National Bank is burning, the Securities Commission is burning. So you you also have to keep in mind in what kind of society we live, ho how financial literate are we because most of the people you know if if they if they let's say they they buy crypto with crypto 12 crypto 12 goes bankrupt uh their crypto is gone they're not going to debate with you you know ah there was a risk I should have carried or I knew there was a risk no they're just going to go to the regulator and complain so I think overall they're not overprotective Um but obviously I think that that um they could move faster on certain questions and that's that's what we are kind of missing with crypto 12 because um like example our app which we're looking to launch by the end of the month. We've been in our app has been ready for already 10 months. So we're still in the process of of of getting approved. So basically that's what we call when I said discretional powers.

Um basically you need to ask them for approval for everything and speed is the biggest problem that they

and 10 months in crypto world is ages.

Yeah. I mean uh 10 months to be honest uh our app uh we developed it within the 10 months. It's not the app that we applied initially because over 10 months we had to improve. Exactly. Yeah.

So so you constantly have to to improve. So the app that's going to launch has nothing to do with the app that we applied for 10 months ago. But I guess I guess that's yeah you got to handle that. There's no way around it.

And uh looking back uh or from a hindsight would you go again through the through the same process?

I mean what's the other option? Um

is it worth

is it worth

is it worth it? Yeah, I think so. I think so. Definitely. I mean, Crypto 12, we had an immense uh growth for the past year.

Just I mean, I'll be open with you. First, when we started, uh we we thought, okay, the first year we're going to finance out of the pocket. Me and my business partner, we bootstrapped it. Um then, okay, the second year we're going to, you know, probably be break even and then the third year we're going to start earning money. Right off the bat, um we we we we we had like last year, I think between 150 and 200 million volume, which for Serbia is insanely big.

And uh we already not only made money but we we we really had uh much higher profit than we than we were expecting. So in terms of that that that was good right in terms of my my my wrinkles up here. Um it wasn't that good to be honest. So it was a lot of it was a lot it was a big fight. It was a lot of unexpected um interactions with the regulators.

Um the the I know you know the picture where where you know we had a photo shooting and then we get an email from the regulators and um just your that's basic my whoop is you know tracking my my stress level and then I could every time see when I get an email from the regulators. So from that side I don't know overall I would do it probably again.

That's that's brave. Um, kudos to that. And um, we already uh mentioned uh Serbian regulatory framework and you mentioned Mika. Are those two things comparable? Can you compare uh Serbian law to to Mika regulation?

So for those who who uh don't know what is Mika? ICA is European regulation which is directly applicable to all EU member states and it stands for markets in crypto assets regulation and it is um its goal is to uh have same rules for all member states and to level the uh playing field in crypto markets. So Serbia whenever Serbia is introducing a new law they're always trying they're always looking with one eye to the EU obviously also because of the integration process um so they're trying to assess so when they were writing the law on digital assets in Serbia they were trying to assess what the EU is going to do um I think they were also surprised at the end with Mika because nobody accepted like such a tough regulation um but survey did a very good job in my opinion because it didn't overregulate at least not on paper which is good. So it gives them it gives them a lot of playing room. I think one of the biggest benefits of Serbia at the moment is the stable coins are the stable coins because Mika basically killed stable coins like USDT.

Now you got obviously popping up new stable coins who are going to be Mika compliant but USDT is the number one by far and they just killed it you know. So what we also see we we see a lot of EU customers coming to us because of USDT because they they can't on or off rampit uh or it's more getting more difficult for them to on and off rampit in the EU. So yeah overall I think we're in a better place. I just hope that Serbia is not going to make the mistake and implement Mika in Serbia. Mhm.

Because right now we have a opportunity to become really a hub in the Balkans. I was in in Albania um um last week I think at a conference speaking there and the the potential market is huge. The potential is big. I mean Albania peer-to-peer they're doing like 30

five more minutes

five more minutes.

Five. Yeah. They're doing like 30 billion a year peerto-peer in Albania. Then we got Bosnia, we got Serbia, we got Montenegro. And and if Serbia was to regul introduce a regulation like Mika, it would absolutely kill the the market.

And I don't think it's in anybody's interest.

And comparing to U European market to to Mika, um what are Serbian advantages that we can sell to to others? Yeah. So, as I said, number one is the stable coins. I mean, stable coins are are definitely um the the other thing is also, for example, what what's possible in Serbia is the B2B transactions between businesses. Uh we we see a lot of customers uh who transact, exchange their services or their products for digital assets for crypto and vice versa.

And then they come to us and they own our offer. Mhm.

So from what we saw, we had huge FDI uh like foreign direct investments through crypto

and and uh mostly it was through stable coins, you know. So I think I think that's a big opportunity and um yeah, let's hope it stays that way.

And how would you assess um day-to-day business activities involving crypto? So not long-term investments or short-term investments like uh trading but using crypto in regular business for payments um if we can call them payments. So yeah they're not what's your stance on

so payments are not allowed right for payments you would need an exchange or a company who has a license for crypto processing which at the moment no company has

at at a retail or wholesale

uh B2C. So B2C there's there's nobody who can do that. Uh B2B uh it works and it's very important especially when you have um businesses where there's a lot of transactions back and forth. Let's say for example the eye gaming business which is gambling. You know there's there's um flow of money constantly.

It needs to be quick. It needs to be cheap. It needs to be instant 24/7. And that's what you have uh w with with crypto. So we can see businesses using basically for liquidity p purposes uh crypto and then eventually on once they need fiat they come and on an offer.

So I think I think that's good that's good for for for Serbia as a hub.

And do you see growing demand for blockchain infrastructure behind the scenes uh even if uh consumers don't notice it? What's since you are in in a regular contact with both sides both from regulators perspective from somebody who runs uh a centralized exchange and someone who um is doing business development and sales uh with um B2B um partners. So, so when when we built our app, there was one main goal and it was to be as simple as possible. Just so you understand, we have people who are 50, 60 years old who are running their businesses and they're using crypto as a mean. They don't really care about uh you know um on the background and just know it's secure, it's cheap and it's easy.

So there is a demand for simplicity. Uh I think that that's the most important thing because if we don't keep it simple then those people are going to have a tough time to adapt. Um our volume 90% is through emails basically just people write hey I want to buy 100 100 USDT and that's how we interact with them because I I don't even know how they're going to react to the app. Obviously, you got the cryptosavy and the techsavvy people who going to love it, but like 90% of our customers who are businesses, I'm not too sure how how much they're going to use the app. Even though it's going to be as simple as possible, just going to be a simple swap app.

That's it. But still, I think there is a big demand or we should for especially developers, they should look to simplify things as simple as possible. um don't complicate things you know don't um confuse people with private keys uh public key they don't care about that they care about what can this technology do for me how can I use it and show me the the simplest way how I can use it so I think simplicity should be should be the number one goal when it comes to uh developing infrastructure

yeah user experience is still huge issue in in web three and it is like a joke if you have to explain it then it doesn't work, then it's bad.

Um, are we good on time?

Uh, yeah. So, to uh wrap up on a on a positive note before we start with questions, uh what are your final thoughts about uh web 3 uh business in Serbia? Is it

bright or uh challenging? I I think we're in very good spot and the and the biggest reason for that is I mean just look at tenderly outside that's uh that's a huge company one of the biggest in in the region and we have a huge advantage because we had the IT power in this country AI is coming that's going to disappear so we got to use it as long as we can um we know that that developers are are especially the hard coders are going to disappear over time but now we in a lucky position that we we have we have the brains and we got regulation and we just have to use it. So I'm I'm very positive about it. When it comes to Serbia, I think that we can be really happy because we we we see exchanges from Bosnia, they're coming to us. Albania, they have contacted us.

They want to uh uh they want to attract us to Albania to start also uh they're the process of licensing. So I think Serbia could really be like a main not in the region and um we just have to use it.

Uh thank you. Um, do we have questions? Do we have any questions? Okay. I I uh hope David's journey and his insights on the region encourage someone here to actually start a new company.

And it seems like we're all on the right track. So, let's please I David a big applause. [Applause]