DAPPCON 2024: Beyond Custody: The Emerging Role Of Web3 Gatekeepers In Traditional Payments

Transcript

good afternoon everyone um yeah I'm I'm Karan I'm the clo at at nosis and I'm going to be moderating the discussion today on on the role of web three Gatekeepers in the context of of traditional Financial systems and I mean we've seen you know a a significant transformation as uh we're starting to adopt uh new web Technologies and fulfilling the role of of Gatekeepers um and integrating those to provide access to traditional Financial systems and institutions and purpose of discussion is just to explore in a bit more detail today with the panelists on how you know that function of web3 gatekeeping is changing and redefining the role of

financial intermediaries uh and the way that we you know Grant access to these systems um just like to ask panelists Maybe to give a brief introduction of yourself and your projects and then we'll get into some some some questions sure I can start so my name is Andrea kamacho principal product manager at elliptic my job is really to build solution uh for our customers to make sure that we provide visibility and transparency about a their users F uh footprint on chain making sure that uh they have visibility and and a level of comfort knowing that they are happy to provide a service to them imagine for example you're a traditional uh trfi institution that is dipping

their fit into crypto or you're even a native web thre company the first thing or what very close to the top of your agenda you want to make sure that you're not interacting with criminals you're not for example uh facilitating money laundering within uh within crypto you're not financing or facilitating payment and end up uh financing terrorism and so my job is really making sure that we create create this solution that help protect um both the users and our customers that uh that are asking question about their users well good afternoon everyone thanks jent um Marcos from noses pay basically eliminating barriers between web 3 and web two hopefully making

everything turn into one I'm Julian one of the co-founders of the idos and we are all about identity um the idos is a decentralized storage solution to uh store user data and um you we all know the proof of personhood use cases um our um thing that we want to solve is um to be able for the identity to be also be used in uh uh highly regulated uh use cases and I guess this why I'm at this panel thank you um so maybe we'll start with some general questions that I'll put to uh the whole panel and then come into a bit more specific questions on each of your

specific projects um so I like to put it to all of you like how do you see the role of Gatekeepers changing uh as we start integrating more web3 Technologies into traditional Financial systems and bridging that Gap that currently exists today yeah I can probably start and give my view here so it's a very interesting question cuz I feel within web 3 the Dynamics are really changing and when in traditional Finance the role of the gatekeeper was the same and was within a specific company to ensure that there very good visibility about who are the participant that are leveraging the service of the of the institution in web 3 where AR is to see this separation

between the role of the gatekeeper and the role of the companies or the project or the um the sort of service that helps to provide visibility about the activity I I see myself and I see elliptic more in this like second space where we provide visibility about one's own chain footprint and that's very distinct we tend to not be particularly opinionated on the Revel of compliance risk that a user poses because the role of the sort of like gatekeeper and the ultimate decision will still sit within a traditional institution however what's very interesting is that the whole technology starts to become a bit more of a primitive that is extrapolated out of the financial institutions and then

is made available to a much wider audience there's a lot of uh efficiencies to be gain and and and also an increased level of Effectiveness with which this new type of primitive can help to provide visibility um I'm personally very enthusiastic about this topic um first of all because when you're trying to connect two worlds the old or the traditional World um all the decisions based on are you allowed to transact are you allowed to have an account are you allowed to hold money they came from an understanding of what a regulation meant and that understanding had uh a lot of a

return on investment incentive which means how many cents of a dollar do I need to invest in order to get a dollar and if that user fits that profile then very likely that you're going to be accepted to start Banking and the fact that we now opening that Pandora box and put it in a format that it's a lot more transparent if users are available to transact like if they can if their um information um uh well it's blockchain right it's it's it's it's you carrying with you uh which is the entire objective of open Banking and Regulators

in general so when you actually go from that angle I feel like um ensuring that Gatekeepers have the right understanding of the user and the users are actually worried about how are they going to be perceived by institutions that's that's that's a good uh that that that's a perfect new world to tap in um I believe that um if we looking at those two systems right now in the financial World um we have the current banking system and we have the defi side right um and those are on very opposite

poles and ideally we um have a very permissionless system um in general now um in the last decade we haven't really seen the adoption uh in the the crypto side and I believe that for us to really change that um it's the base question of do you change a system by completely erasing it building something new we've tried that it got us here which is quite far uh but I think if we really want to go to the mainstream uh people then we need to change it from within and I think that will um in general make it better because I'm kind of tired to just

have this technology be um available for technical Savvy people as well which also I believe is a restriction um now do I like that there are Central Gatekeepers in also the whatever the new system is called somewhere between Banking and and and defi I I really don't and uh I think that the current systems are not nuanced Enough by far for example we do not want to just keep people out because they are misfortunate to be born in a certain country right but unfortunately this is what we have to enforce today so by giving um different options and this is the thing that we are excited about um we might be

able to help because people are finally able to vote by their feet who they want to um identify themselves with um to change that um one by one because right now we're living in a very monolithic world when we're talking about Finance if you're in One Bank you can only use the products that this one bank has and this is terrible in the first place and we're not talking even about like having something available that is um beyond your nation state right um but uh I have to admit I'm quite conflicted when it comes to being even on this panel you know um because I I guess this is why we are all in that space to reduce the

impact that Central Gatekeepers have on our everyday lives I actually want to build on this because I think it's a very very interesting point that you made when whenever when I read the sort of title of the of the panel I was like I'm not a gatekeeper I don't want to be a gatekeeper um and and actually I think that's still something that that you can reconcile together right um I feel like company like ours and projects like ours help to provide transparency and visibility about certain information and then the virtual of service providers the trfi the various web free natives everybody with this new AED visibility have the opportunity to decide I'm

comfortable interacting with this user I'm comfortable providing services or I'm not but I think the gatekeeping s still sits within whoever provides the service while I feel like our role is more this is going to be a horrible analogy but more like a a garming watch where we provide information and then it's up to you to say well I'm comfortable with the number of steps that I that I did today or uncomfortable with the number of runs that I've made this week I allow me to slightly disagree and um and and maybe there is a fundamental element um today you have centralized companies which are saying I am the guardian of your data or the gatekeeper of your data and I'm giving you access

to to interoperate in finance once you're separating Bankers from banking maybe I'm a bit biased on that view um then you're kind of shifting resp responsibility that entire view that you're just basically providing some someone with software that's a short-term thinking on the long-term thinking our responsibility is not going to be anymore to collect those 30 data points on where do you live white person blue eyes uh engineer potentially not a risk to the community our job is going to be to effectively collect thousands of data

points and then provide with certainties or provide with more guidance for decisions to be made and then there is an element of risk which is still going to be held by service providers to say do I want to serve this person yes or no but the Guardians and The Gatekeepers are those that are basically able to help tracing this data and not just give it uh with a generic flagging system that someone one day implemented but rather basically help to say okay now I'm connecting all this information and from our view this should be with x amount of

percentage uh this person is legit his business activities are legit up to you if you want to do business with that person yes or no so it it I think in one hand you have a greater responsibility compared to the Past on on the other hand you also have a greater opportunity to then become a lot more relevant because kyc is not about just saying yeah uh passport data address but then again it's it's it's a more intelligent uh uh intelligence is not a word but a lot more valuable to to to the community uh information I think it's that's an a really interesting point um because you

know blockchain technology gives us access to so many different data points now that are permanently recorded on chain you know and that can be linked to a particular account that gives us visibility and people's behavior Way Beyond what we're able to access today without the user volunteering that that kind of information right and that opens up all new kinds of risk analysis right and I think the role of you know web 3 projects who are trying to bridge that Gap is to demonstrate to trafi and to Regulators how we can achieve the same regul objectives but just using different sources of information and taking a slightly different approach uh and I fully agree with the comment that

you made as well Julian which is around you know the role of centralized Gatekeepers I think we need to start transitioning into a decentralized model right but one that also you know is consistent with web three principles that can ensure that users retain ownership of that data and they choose how they share that data um and there will obviously be different requirements for different you know service providers on what is acceptable forms of data and I think that will evolve over time but it's process that we need to start now to demonstrate you know that we can identify people that we can manage risk using different data points than what you know we're accustomed to doing today with you know providing a passport or a

proof of ID or a pay slip to demonstrate your your source of wealth so um maybe moving on then so what are the biggest challenges that we face as an industry you know to bridge that Gap to trafi and make them understand that there's a different way of putting guard rails in place to make sure that you know the wrong actors don't participate in this ecosystem and potentially uh taint it for the rest of us and and paint us with that broad brush that you know crypto is all bad and blockchain is used for uh things that it shouldn't be used for but my step in there I think the main problem is that it's so easy to make money with meme coins that no one bothers to actually solve the hard part um and uh to actually uh achieve what we

set out when uh the Bitcoin white paper came out as a reaction to the financial crisis to really build a better Financial system and I sometimes feel like we have lost track of that and when I entered in 2017 I I did so because I realized that uh this will bring open source into finance and I have to say I've been uh a little bit disillusioned and uh frust rated in the last couple of years because I didn't see any progress here so the thing that kind of gets me motivated is seeing monium Spike I'm not sure if you've seen that um presentation um a little bit earlier that shows me that this is actually around the corner and we're trying we're starting to bring

um just like you guys open source uh into that field so I'm very happy about that um I am less frustrated I I see I see actually something quite interesting U First perception truly perception um let's recall what is kyc today in general and let's recall what is the incentive from the regulator or the finax out there basic kyc who are you Marcos prove that you are you passport where do you live proof of address every second kid that was born

after the 2000s know how to use PDF editor and that person can make a bunch of adjustments and by the way every fraud there out there knows this better than anybody else and then the incentive that The Regulators created was because this is the way X person did it then every Finch out there simply stays with that boundary I collected the passport I asked what do you do for living and then that answer is sufficient for everybody to be validated but in reality what do we want what is our incentive I mean do we want our kids to be among criminals

do you want to raise do you want to raise a society of criminals no I want to live in a place where it's you know free and and and and people are not going to be harmed by others so I want to make sure that we are better than anybody out there uh verifying that humans are humans and they are saying the truth about what they're doing in fact I don't even want to ask them if I have the data available uh to make decisions so um I I see that the perception of the regulator and and and I and I don't say this from a criticism point of view the kyc standards were created what 50 years ago and we're still using them and now

we have a bunch of more technology out there that can help us to provide something a lot more lean idos as an example I am the owner of my information and I will give you a signature that it's valid and recognized um um yeah by by by the regulator that this is a legit person so the the the two things that I see it interesting but also um realistic about life people had to put a card image in the phone to say this is an Apple pay a card transaction right so so kind of still have to give that nonsense in order to do something that makes sense um and if you basically think about um

Regulators they need to be helped and I think a lot of people are either using the role of incentive I'm doing what you ask it's not of my problem don't put me in jail or I'm just don't want to I want to ignore until I can uh um in order to do this so I hopefully us and many others out there can actually do the contrary is basically saying this is what you can actually do these days this is how much better it is I will promote a little bit of idos because I'm a Believer so please regulator look at this as a mechanism to avoid gdpr fines because if the data sits in the hands of the user companies cannot screw up the data so anyway bit of a I think that's

that's a really important point because you know in my experience Trad fight are reluctant to um go into the conversation with the regulator um in a way that they ask for permission to do things differently I think that has to come from us within the industry um and you know because trafi is so heavily regulated you know they have certain standards they need to ensure ongoing compliance with and they won't change that unless that comes you know from the regulator down so I see see that as one of the the biggest barriers to be completely honest with you and that's you know on us as an industry to give reassurance that you know we can achieve the same objectives but using different technologies that

can create greater efficiencies that can you know provide users with more control of the data which is stuff that regulates the supportive of you know you've got this uh privacy Frameworks in gdpr in Europe and in the UK and everywhere else around the world where we've seen instances of like data hacks from centralized Gatekeepers and we need to move away from that but we need to show you know how we can do that in a safe secure way that you know traditional financial institutions can also rely on and and trust and I feel like sometimes there's still this element of distrust between you know trafy and the blockchain world we slowly starting to bring them closer together I think there's still a lot of work to be done um but the the interaction with The Regulators I think is going to be a huge

part of that uh that role if I just may add to that uh real quick um there there is something very interesting going on that um by us kind of um going more into the the real world realm where we want to issue cards have a bank account and then also need to comply uh with certain regulations uh there's an interesting development happening that suddenly you see um some tread fire players actually adopting uh our technology um PayPal issuing a stable token and and that has a very interesting effect because I mean as you can probably attest to it a lot better uh if you're looking at the it landcape

of banks in the last 30 years this is just terrible and sudden you have this process in terms of innovation here right when we're talking about um Gatekeepers we tend to focus on the user side what I am also very interested in is from the Builder side how easy is it for me to um innovate on a bank stack without having the permission to do so uh and this is something that I see changing a lot uh interestingly because we are um creating systems that uh allow crypto to be compliant great um maybe coming to you and Andrea because you know I think

elliptic serve you know Crypton native projects but probably also serving our financial institutions who want to dip their toes into the blockchain universe um like how how are kind of the tools that you guys provide helping traditional financial institutions kind of bridge that Gap and start you know having a little bit of exposure to the blockchain world and start accepting this as you know a legitimate you know means by which they can offer services to their users and maybe if you can give like an example of a partnership or or or a case study of of how you've kind of brought traditional Finance uh into the let's say web 3 Universe yeah for for sure and maybe maybe I can start by saying that really in the last two years

we're starting to see a very significant traction within the trfi word maybe five years ago three years ago we we saw the very first like shy dipping their toes within crypto of of various traditional Finance institutions that we're looking at the opportunities there now there's a lot of building going on and and the way elliptic helps trfi and financial institutions in general is making sure that get the Comfort level that they would require within the older sort of like more traditional F system and have at least the same level of of Effectiveness in detecting illicit activity within crypto um I'm not going to share the specific name but one uh very very large payment provider uh has

relatively recently launched a stable coin uh within within a couple of network um the only way in which they were able to do this is by making sure that it had all the tooling from an anti-money laundering perspective from a kyc perspective from a um from a sort of like ecosystem uh monitoring perspective with elliptic that is able to then making sure that none of the users that that are benefiting from this table coin that are moving this table coin are associated with activities that um that the Shi will be uncomfortable with amazing I'm I'm just conscious of the time so I'll come on to like a a few concluding uh questions remarks from

from each of you um firstly what trends do you foresee in the coming years and how you know the role of this gatekeeper and the technology we use to ex to execute that gatekeeping function how do you think that's going to change what do you think is going to be the main change that we're going to start to see and then what advice or recommendations would you give you know developers and entrepreneurs wanting to build you know systems that can contribute towards this Paradigm Shift um and what are the things that we missing as a reg from a reg Tech perspective to give trfi comfort you know that they're not going to be servicing criminals or they're not going to be touching illegitimate funds yeah so we started in crypto of course in the

way it should Freedom let's build Tech and then we see what happens in the usage um now 10 years later you see lots of usage very tiny percentage very very very tiny and if I actually look at banking in the amount of fines they pay per year for actually not doing proper understanding of their customers it's a lot greater than anything that happened in crypto uh to this date so um again very optimistic Trend itself I see more and more worry on this topic in crypto in uh the regulator in the traditional banking so I see that um we can

basically play that role for more uh people um second it was about sorry what what um like recommendations would you give developers entrepreneurs wanting to develop yeah so my my first recommendation is um it's there for a reason and I think the more you understand uh what regulation in general says the regulation doesn't tell you how to do it and it says more more like this is what we're trying to reach so actually when you read it it's it's actually very good um that doesn't imply that everything you do needs to be in a given you know format of a regulator

things are much great so you you you you can separate we're building a check-ins account every fund that goes through that check-ins account has a certain rule uh if you want to play in a given economy right so I I I would say to put guns down you know that scene from Eng glorious bastards everybody with the guns under the table it's no longer that time I think it's a lot more like helping them to understand because it it it's better for everyone Junior um the trends that I see is a modularized finance and um the tip that I would have is not to build more infrastructure but use those tools to uh

build cool things because you would have an intense uh Advantage compared to the tread FL deack maybe one very quick thought I love all the sort of cryptos Lu thing going on and since um um someone like on a or Twitter like following a uh North Korean hacker or following some terrorist financing laundering the funds that's absolutely amazing and and it's just so great to see that on the open in the public when all of that used to happen just within certain walls in the past I think that's just amazing and I and I want to see that exploding in the future and see that more and more it's it's just great

all of us amazing well um thank you to all our panelists I'm not sure if we have time for any questions if there are any um in case hi so I have a question about so in over the last few years we see the more and more regulations coming in uh ml the five six seven coming coming in the future MAA ofac sanctions Etc being implemented and it seems like the crypto is becoming a pool

of a permission pool of users who can only access uh crypto uh after getting qic uh qit etc etc so I'm I would like to ask um what of the previous permissionless EOS will will remain if we just mindlessly apply all those regulations and limitations um I mean um folks in the US um would love to have MAA in place because then they would have some guidance that they can follow

to offer things in the first place right like I mean um not knowing what to do is the thing that that that hurts um the uh ability to just build on tools that actually matter for a whole lot of people uh is something that I deem extremely important and just like staying in our small Niche to build tooling for very technically Savvi people uh is not something that that interests me personally much to like spend my whole career on what I'm interested in is building tooling that everyone could potentially use and then

uh we should I think also accept that we're living in a place where we all make this regulation right in a democracy and where it's not that the the people that has the most tokens make the rules but actually the people itself make the rules so if we don't like the rules we should change that and we should work on changing that um and having that technology there I think actually Mika is is quite okay there like they let us do a whole lot um especially the p P side especially the data ownership side they understand that um is it perfect no certainly not so what's the

difference between Krypto and trafi in the end like if we regulate it a lot what's the what remains that is better than try maybe not really a direct answer to your question but something I think it's very important to recognize is that the population the the people adopting crypto right now is very different from what it used to be in 2013 in 2015 2020 and population and user groups evolve that means that the values also change and so while I think it's a very fair question to ask what what's the EOS that remains of the the origins I'm actually much more interested in knowing

what is the type of ecosystem that we want to create right what is the type of ecosystem that we feel crypto should be powering for the next 5 to 10 years I don't have an answer and I know that obviously there's a number of attempts that are going to be made and we're going to have to iterate on a number of different angles but I think it's a much more interesting question asking oursel where do we want to be in 5 to 10 years so um first of all thank you really very much for your question because that we always debate about this um and I think there's two momentums and I don't think when you're seeing you B basically being a tread FY uh or you're losing the utos of crypto I

think that's that's an incorrect thought and and and allow me to say that because you have different situations think about the if you are now an immigrant and you are coming from X country and going to why country and then you have to restart your entire Financial life to have access to a SIM card so I had investments in Holland I sold a property in Holland and I could not get a SIM card contract in the UK because I did not have past three years an address in the

UK so there is that element of you know basic need that is already resolved with blockchain because data is portable there is no it's no longer defined by a country now access to data when given back to the user to the owner it's up to you how much you want to share and how much you want to participate in a given economy and then I actually love the comment of Julian the way of fighting is not by avoiding the way of fighting is by basically having the understanding that it's not the best way of moving forward and eliminating because what's

happening right now and maybe a lot of the global instability it's created by passiveness the more we are able to protect by being forward on knowledge on understanding different cultures different needs then we can actually say these are the limitations where I'm willing to live and if not I can move but finally we have a Financial mechanism that allows the world to be one when it comes to moving data and no longer being controlled by maybe worst names out there but JP Morgans or Goldman Sachs of the world nothing

against them but I perhaps trust more matri uh to be my service provider or I trust binance to be my service provider so I I think there's a misunder understanding that you are dropping the EOS I think it's a lot more optimistic than that I think it's just allowing you to participate at your own terms but also under a given Society terms um yeah at any at any point in time so I think gatekeeping in my view the responsibility of Gatekeepers the ones that are providing this access it's a lot greater now because if somebody

screw up my daughter will only have onchain data and that means her life is going to be yeah available to anyone if not done in it the right way so I think it's it's a it's a it's a I love this debate and I and I think it's U the roots of uh crypto or blockchain it's actually the reason why the world is going to evolve thank you thank you very much I think our time is up um so thanks again to all the panelists and um not sure if there something else on now yeah yeah no that's that saes a round of applause for

our speakers thank you