CVA Podcast: Norman Wooding, Scrypt

Transcript

[Music] hello hello yes we are back this is your host raz ahmed ready to kick off season two of the crypto valley association podcast let's continue our adventure to discover together the growing trends of this fast-moving space and try to shed some light on the mysteries it contains today we are joined by norman wooding ceo of script one of the first regulated swiss companies providing institutional investment solutions so let's dive straight into the hidden world of asset management norman thank you for being our first guest of the season how are you doing good sir thank you for having me our pleasure is ours so

let's get straight into this maybe you want to share with us your first cryptocurrency and or blockchain experience that's quite a loaded question so i started in 2015 mining cryptocurrency bought an old broken down miner from bit main and then i fixed it together and since then i think we've gone through the journey of mining staking smart contracts trading and doing arbitrage wow okay and so maybe you can tell us a little bit about that journey and where you ended up because now you're the ceo of script so you came a long way yeah there's been a few ups and downs so i started at university like i said mining i then went on to do my master's thesis on blockchain and smart contracts and aligning agency

and principal incentives so a simpler term to say that is how do you make an employee or people who are part of your organization how do you align their incentive with the organizational goals and we found that using smart contracts was around 33 cheaper and more efficient than traditional contracts because of monitoring costs that might be a slight dive into the technicality of it but i think i've been immersed or attracted if you will to blockchain and crypto because of every aspect and its utility and now we can go on a really big rant about supply chain smart contracts land registry remittances voting and you know under 100 use cases and applications that it brings to every industry but maybe we talk about

your use case first being script sure so we have two branches or two pillars in our organization the first is our markets division that is our otc desk and our 24 hour seven trading abilities our best execution prices you know multiple fiat currencies secure custody api integration and the second would be asset management under asset management we have two investment products one is arbitrage and the second is yield and what kind of geared me or shifted the the journey to the results or the end goal or product that is script is i found myself in my university dorm outperforming hedge funds right exploiting arbitrage opportunities on simple exchanges like kraken or otherwise

and at the time i was studying my master's at lsc i found i was out earning my professors in terms of income just by staying on my laptop with my glasses and this is a conversation we've had with many people on we are coming from the aspect or the point of view where this bitcoin thing is great let's start a hedge fund not a hedge fund waiting around calling it a scam i'm not really understanding the philosophy or at least having a lack of passion about it and then they hear about the returns and the alpha and suddenly they're integrating crypto into their strategy or into their portfolio so we're coming from a crypto side of you and then we're kind of institutionalizing ourselves in the offering

and we're not simply swallowing up crypto because now it's been around for 10 years other people have tested it and it's endured the kind of test of time if you will no i see that maybe we'll follow up on that point straight away whereby i definitely see that there there are two ways by which crypto firms are currently operating right either in this unregulated wild west approach or the more legitimate way that your company is following but at the same time it's a bit more cost and time heavy so maybe i'd like to give our audience a view into the challenges that have taken place following this regulated route sure an analogy i like to use often is the bridge that connects the traditional world of finance and crypto

this bridge is unnecessary and it's mostly by people who have fomo that is fear of missing out so you see these big banks and these institutions calling crypto scam and then three years later developing their own coin or branching out or you know diversifying a large amount of their assets into crypto and we like to say there's no need for a bridge crypto is kind of taking over if you look at ethereum 200 up this year paypal 99 up bitcoin 80 up and you look at jp morgan wells fargo barclays and that where cbs and all these guys are going down jp morgan have a coin dbs are launching a crypto exchange so we are a bridge because there's a necessity to do so at the moment and you can see the many attempts from these strong incumbents to try and not

lose out and to be part of the next step in finance or call it capitalism or you know what following whatever macroeconomic trend that is now happening with bitcoin and other cryptocurrencies and blockchain one of the main challenges with regulation is you're trying to combine the innovation and the efficiency of blockchain and digital assets with the inefficiency in the bureaucracy of regulatory bodies governments and banks so a lot of the crypto companies are playing cat and mouse with banks because they simply won't open them an account or they'll open them an account under the privy or the constraints that they can only trade with that counterparty the advantages far outweigh the disadvantages and there's many routes you can follow

when tackling regulation so an easy fix back in the day two three years ago was malto gibraltar estonia and you see these as not really the top jurisdictions because of well i don't really need to say you can just look at the recent news articles about money laundering in estonia you look at mass the monetary authority of singapore and they've recently opened up you look at the uk and they're recently opening up i believe our caps was one of the first companies to get fca regulated and now they're doing a cmf a l kind of a regular story sandbox hot so the main challenge in regulation is the paperwork the inefficiency the cost and the added time once you've incurred this lump sum and kind of sunk cost then you're in a much better

position but you have to be able to withstand the test of time and pay all these bills before your infrastructure is fully established you see other crypto companies who don't follow this route and who simply make a lot of money and hop from jurisdiction to jurisdiction and you can see a shadow or an emblem of this in finance's early days right where they're kind of running around everywhere and they're making so much money that even when they get told off by the authorities or regulatory bodies they kind of hop up from jurisdiction to one another and you see in switzerland they're a bit more advanced they're a bit more innovative and they're putting in procedures like the travel rule to again institutionalize and regulate this environment

now there's many aspects to that you could argue that implementing a travel rule is good for strong incumbents who know what they're doing and kind of pushes out all these new entrants and adds to the burden and the regulatory work they need to do in order to establish establish themselves and grow as a company you could also argue that the travel rule is against the very ethos of cryptocurrency and i'm not talking about anonymity i'm talking about privacy no barriers no capital constraints no middlemen no fees and no control mechanisms so there's good and bad points to you know to getting regulated or not we obviously took the regulated routes because we want to accommodate institutional investors and with the regulation comes the comfort that your funds are safe

you know a famous line by the ceo of binance that we are professional that you have a white glove service we like to say human touch machine precision and we know what we're doing that is when you buy bitcoin on coinbase and there's an error that'll take two weeks to get back to you when you buy crypto from other service providers in switzerland you may or may not get crypto that day settlement isn't fast whereas with us it's more or less instant settlement secure institutional spreads and pricing and that we are one of the if not the cheapest guys in switzerland well so it's a big statement and you've probably fully embodied the swiss mentality as your domain is actually uh dot swiss as well i'm sure it will pay off on the long term and maybe we can go

further into that when you touch a little bit on security and i can tell that script has as an ethos to have uh security at one of the top of your priorities maybe you can tell us more about uh what makes scripts so secure absolutely so i cannot take all the credit for this this is our custody partner fire blocks who are one of the biggest and best guys in the space they came out of stealth mode and i believe they just passed 150 billion in transactions which is amazing and the security aspect of this is i'm a firm believer of not your keys not your coin now there are some compromises with this when you're dealing with an institution who has no experience knowledge or expertise and you kind of have to take that mandate of securing their phones and making sure

that there's no one single point of failure now how we work is your private key is divided into multiple little pieces right they call this sharding and we hold these pieces on hardware and software devices so there is not one single point of compromise that is we don't have a silo somewhere where someone can drop in with a swat team and steal your bitcoin and we don't have hot hot wallet key compromises and you look at the space and you look at every hack known to man from mtgov to one week ago d5 was drained 25 million to crew coin which was drained of 300 million if i'm not mistaken and verge where more or less a 19 year old exploited two out of three lines of code to mine millions in a couple of seconds

so security is paramount to this industry and i think if you look at the numbers there are two major hacker groups responsible for all this drainage of fund and they're estimated to be taking one to two billion a year from hacks so we take security extremely as one of our top priorities and that's a i don't like to say it's a unique offering because it's standard practice for us but when you look at all the other players in the space and maybe the top 40 people in crypto offering institutionalized service then it is actually a unique selling point i see that's probably what brings the the institutions on board right if they have something that is secure and that they can rely on they'll be more willing to join the space and actually follows on from a headline

that i read today stating that institutions are finally here do you have any thoughts on that statement i love it i love the irony in jpmorgan calling bitcoin a scam and then trying to build out a software department and not being able to do so and then selling that to consensus and in turn raising i have something around 15 or 50 you know million for this software company i love the ceo of paypal calling it a scam and now paypal recently launching it and people going crazy i love the central banks who are now exploring cryptocurrency the central bank of china i love that it's legal tender in japan i love that the swiss bank are trying it out now the swiss central bank

so i love everything about it and if you want to have a few drop the mic statements then you look at microstrategy who have now earned more in bitcoin than their net revenue over the past three years so there's the financial aspect there's the economic empowerment you look at the wikileaks founder and all these people who are who are ousted as whistleblowers who weren't given a back account of bank accounts um back in the day and who put all their money in crypto and who were very very thankful for it if you look at publicly traded companies i think around 1 billion or more is held with them in crypto you talk about the institutions are here 50 of accredited investors in the us are interested all have bought crypto you saw a

spike and this may be going towards retail but you saw a spike on coinbase of purchases of 1.5 to 2.5 k usd when they received their stimulus or universal income if you will during the coronavirus and institutions are coming in why because the best performing asset class of this decade is crypto and how did we think it was going to act during the coronavirus we saw it outperformed stocks sp 500 oil and even gold and over a large amount of time there's no correlation to these other commodities and markets so it is truly a safe haven it is a hedge against the current macroeconomic capitalist you know i can get really philosophical but it's a hedge against the current society

against the fed there's a common line in crypto where money printer go brew and what this means is that the us is in more debt than ever before and that whenever they need money they do something called quantitative easing and it's as simple as printing printing printing and we can go into the beauty of bitcoin and the fixed money supply and deflationary economics and austrian economics and how each miner is a mini central bank getting rewarded for validating transactions and creating money supply or we can look at jerem powell of the fed printing money right and try and disseminate the economy so i was a main attraction to me as i studied economics my bachelors and my masters and it has a use case it has a utility

it is grounded in theoretical soundness and if you look at the past 10 years and the empirical data it all seems to make sense so when they say the institutions are in i'm here telling you they've been in for a while there's just no need to shout this at the top of the rooftop and you look at pension funds who own equity or shares and stocks in these publicly traded companies who own a billion worth of bitcoin because of this because of the pension funds owning it you have retail for people who have exposure to bitcoin and again the best statement about this is microstrategy bought four or five hundred thousand worth of bitcoin in you know i think 4 700 mini transactions they tell you after they don't tell you

while they're doing it a lot of companies will come out and say hey turns out we have a lot of bitcoin yeah just magically appeared in our wallets i guess it's true right you need to be careful of who you who you listen to you know and as you stated right jamie dimon said oh yeah bitcoin is a scam just to plummet the price uh back in 2017 and then we find out later that they bought when bitcoin dropped 30 right so uh it's always to be a little bit wary of how things develop but maybe you can tell us like these institutions you're stating are buying hundreds of millions of dollars in bitcoin how do they do it do they go through just a traditional exchange is over-the-counter practice what is the normal approach here i don't think there's a normal or orthodox method to acquiring

this and it depends on the institution themselves some regulated counterparties prefer freshly minted coin and that is you know a bitcoin which has no transactional history and just created by a miner and it helps their aml and compliance other people are buying on regulated exchanges small amounts and mostly to my knowledge this is done on otc that is over-the-counter exchanges and desks and venues over-the-counter means it's not reflected in the order book and you're not hitting that much slippage that is you don't you're not meeting an order book so you have the liquidity for large orders and you're not shaking the market whereas if i had you know 20 million dollars and i went on kraken and i just bought a market order for 20 million dollars then the price of bitcoin would pump a

bit and we saw that in april of last year where someone with 20 million dollars managed to increase the price by 100 to 200 through algorithmic trading that is he was meeting order books on different exchanges at various times to promote growth if you will we call it a pump right it's market manipulation other institutions will do smart order routing where they divide across 20 30 exchanges and try and get it at the best price time weighted average price so dollar cost average and that they're not looking to acquire 10 000 bitcoin in one purchase and that would emulate or reflect micro strategies right when they purchase the 500 000 and so have you seen an increase in volume then of transactions or people uh

buying various crypto or even transacting trading with it so there's two elements to this the overall market has seen a huge spike in increase and i'm talking or referring to the 1 trillion transacted over the ethereum network to the 3 billion locked up in uniswap and we also as a firm have seen an increase in transactions so when covert hit in the beginning of the year we kind of looked at each other and said oh it's going to be a bit of a bumpy ride and then stable coin transaction or volume increased by 400 and you were seeing people in the midst of the pandemic investing more into alternative investments or non-traditional assets in order to hedge their risk and we were surprised at this trend we were not expecting it and you see the

overall market everything has increased in terms of volume traded so there are key performance indicators that you can measure and you can see the decrease in volatility the overall market cap and the increased volume on all these different types of cryptocurrencies and alt coins more recently the d5 space which has seen a huge boom in terms of volume a very very significant one and so can you tell us how you believe this whole asset management space is going to develop we're going to tokenize everything in five years you will have no middlemen hopefully it might take more than five years and what i find ironic is bitcoin and blockchain is all about removing third parties removing middlemen removing barriers to entry and obstacles and we're trying to ubify money defy

connects the driver to the passenger forget about uber there's no need for uber in this case and what we find ironic is that us as a company as well as other institutions in the space banks desks brokers investment companies are currently successful for making money as a middleman which again goes against the ethos of crypto and you'll see asset management on chain in the next five years you'll see increased coercion with regulatory authorities and governments and i'm talking about less paperwork api connectivity a streamlined process cheaper more efficient and transparent transactions where you are in control of your money and i don't need to take 2 and 20

and manage 100 million just to make the day's bread as any traditional asset management or firm does now you will see increased returns and again i'm referring to the point of transparency where you can lock up a hundred dollars or a hundred thousand dollars on a protocol and you can watch what they do with it so my belief is that everything will be unchained more financial instruments will be tokenized i'm talking bonds equity derivatives options futures perpetual swaps and i'm even real estate moved on the blockchain this comes with a lot of obstacles a lot of barriers from traditional institutions we're trying to uproot the infrastructure of i don't want to be as magnanimous and say the global economy

but how things are done currently and right now so i don't know if it will take two years five years 20 years or if it's going to happen at the end of next year because you have so many people coming into it but i see asset management as cheaper cost efficient transparent faster immutable that means trustless where you implement smart contracts and i don't need to trust my asset manager or the regulatory bodies or all these top four auditing firms which we can give a list and a list of the bad things they've done if you look at the mbd scandal in malaysia and you look at pretty much every week or two someone gets a fine in finance it's going to be pretty hard to to do those things when you're on the blockchain when everyone can see what you're doing

where you can't manipulate the information and i like to think of it as a big game of upside down jenga with superglue that is once you put in peace and peace you're kind of forming a blockchain and it is impossible for someone to edit rearrange or kick out a piece because it's all super glued and they have to do it 10 times faster than i'm putting on top of you know one another and we can go into the usual pitch which is immutable transparent trustless peer-to-peer decentralized ledger now what that means is i can see everything as an investor as an asset manager as a bank as whatever counterparty or third party or direct participant it's all transparent and that's the

beauty of it no one can say one thing and do another at least without you noticing and when you add smart contracts into that you don't need any human intervention i mean then you can go on to a conversation about oracle risk and data delivery points but let's keep that for season three yes uh we we shall and and you're a smart guy norman tell me what's the future of script then if you believe everything is going to be without intermediaries so this is a reference to my point earlier about building a bridge between traditional finance and crypto so we're building that bridge it's solid you know we built it essentially and we're also underneath that bridge with a big ton of dynamite ready to blow it up

because we come from a crypto background point of view and we're passionate about it um the products we're exploring now are all d5 that is non-custodial that is no third party and we're building the infrastructure the software and the process is necessary for you to efficiently manage your money and this can be either as an institution an accredited investor or retail and we're building out data points where people can read you know what are the venues liquidity order size minimal viable volume and we're kind of building out our d5 presence because we know it's not going to be around for long and i will refer to the ceo of finance who said that binance is a cex that is a centralized exchange that's going to be cannibalized

and he acknowledges this by death by decentralized exchanges so we know that this isn't going to last forever and it's a good thing because we are you know in unison with the philosophy of blockchain and crypto and if now i'm not needed in the procedure if i'm not needed in the process then that's better for you right there's no third party there's no miscommunication there's no chinese whispers and you have more control and overview and oversight over your money okay now we're needed because there's a lack of learning and there's a learning curve and there's a knowledge gap and it's still a bit of a wild west and we want to build this industry throughout so we were here before the wild west

we want to be a sheriff to the wild west and we want to survive the wild west right and so surviving that wild west would entail you at script becoming key leaders in education then and being able to support these people as they get along and then ultimately um interface being able to to communicate with this world as well is that what you're trying to say i think our strategy is evolving our mission is clear and our strategy is extremely maneuverable to where we want to get to but the mission is clear and we will adjust or advance or kind of navigate with the tides of the industry and where people are leaning towards you look at this is you know like a like a mini birthday for me you look at

kraken and they've got a banking license in the u.s you would not have predicted this three four years ago we see now institutions taking over and becoming banks we thought we were going to see banks buying crypto exchanges maybe paypal are looking to buy a few custodials that's fair enough but the overall trend is crypto institutions are coming out of the shadows they have the resources the knowledge the tech and they're part of the new emerging wave or asset class or the trend in macroeconomics in society in politics in whatever you want to call it so we're happy to be part of that the mission is clear and we could become anything from a bank to a bigger hedge fund to a software provider

as long as we're in the space offering and delivering value to our users a lean mean fighting machine we're coming out of the startup environment if you will and we're more agile so if you look at defy we were in the space when there was 400 million aum and we were kind of shouting and dancing you know people need to pay attention to this and it wasn't until it hit 9 billion aum where suddenly all the crypto competencies added defy on their linkedin or d5 on their service offering where they went okay i think i kind of believe in this thing come on let's add it to the portfolio i see well thank you thank you so much for that energizing conversation norman as we have to close up soon do you have any final words uh

that you'd like to share with our audience by banks buy bitcoin but uh thank you for your time i appreciate you enjoying my rambling and my uh my kind of speech i look forward to uh maybe another session with a fireside chat yeah thank you for your time and i appreciate the questions and the interest into script oh well it was it was our pleasure the audience enjoyed that one and if you would like to hear and and follow for the content related to cryptocurrency and blockchain technology feel free to check out more on our website cryptovalley.swiss where we host plenty of events educational content and even provide information on how you can join our growing community so thanks

again norman for joining us and stay tuned stay safe and until next time from the crypto valley in switzerland [Music] bye