Securing Digital Assets in Motion

Transcript

[Applause] [Music] good afternoon uh i'm richard from uh fireblocks i've been in the company since about march this year before i was a client for uh for a year we're not a new company we've been around for about three years now but relatively new to switzerland so i'll just spend a few minutes to discuss a little bit about who we are and what we do there you go so fireblocks we're a technology company that provide financial institutions with uh infrastructure to store transfer and issue digital assets

it's based fundamentally on uh an in-house developed multi-party computation uh technology and then on top of that what we've done is built uh what's called the firewatch network it's an asset transfer network so if you think of it like swift for for digital assets uh counterparties on the network so i clients running firebox technology are able to securely connect with one another make it like a messaging layer in order to transact so that sort of process of you know mutual whitelisting exchanging deposit addresses that doesn't exist on the firewatch network you say one k1 entity wants to send uh funds to another it's a question of you know finding them using a you know an lei type for uni unique identifier uh in

order to securely send funds so it's a it's a network that is abling uh digital asset transfers with a high degree of automation and i think since uh two years that that's been live it's it's seen over 1.5 trillion dollars of digital assets transferred through that network a bit of background of the the team so the the core expertise of our founding team is uh is cyber security essentially one of the principal risks that you face when you scale a digital asset operations is you actually do them all with a cyber security risk it's far beyond uh just managing private key material uh so that's sort of where our founding you know founding partners are coming from

and then on the independent board and advice uh we have people like you know jay clayton former chairman of the securities and exchange commission in the united states uh jill fintech sort of prime brokerage background uh founder of tryana and i always mention uh professor rand connetty uh say professor grand uh he advises our research and development team which we keep in-house so the the mpc multi-party computation algorithm that uh that we use is is called npc cmb uh it was invented by uh the firebox research and development team together with professor rand so uh npc cmp canetti uh mario canaanos and uh pellets so the the latter two are both uh part

of uh firebox uh research and development team uh i should note as well that mpc algorithm is open source as lame highlighted so uh it's peer reviewed it can be used by others and i think that's also an important piece of any sort of technology business is that if you're able to open source it others can use it it helps develop a market standard uh for implementations and and really scaling this market because the one difference that we see when we talk about you know financial services or technology businesses you know financials you know technology business you have sort of you have googles you have facebook you have amazon's you know they just want to dominate the entire world you know it doesn't work in financial services financial services there's always a buyer there's always a seller representing their own personal interests so it's very important that

you have a lot of connectivity uh and collaboration across across the market um so two years since we the first client we had about about nine months of stealth mode and then we went live we've raised a significant number of uh of capital just shy of 500 million dollars you know that's as much as a commitment to our clients than really you know you know just parking it in the bank you know you need to have financial security as a business uh mainly vc funded we have one or two strategic clients who also invested in us i think bny melon is probably the most notable um we're about 200 or so staff scattered around the globe headquartered in new york r d's tel aviv and coverage just about everywhere else across the world so

we have 600 plus uh institutional uh institutional customers covering every corner of the market uh so pure b2b players otc market makers brokerage firms custodian banks neobanks revolutes of the world that face a large number of retail customers so really showing the dynamic uh use case of of the technology and then maybe just fundamentally what i'd like to talk to you today about is uh by the way excuse my terrible powerpoint skills um i haven't done powerpoint since i was at high school so really a fundamental question that we speak uh to potential customers about uh financial institutions banks in

particular is and it's a question they ask themselves am i going to do this in-house or am i going to sub custody with a third party now this is not you know i think you can see where this is going to end up but it's not a a a uh me to talk about self custody because quite frankly there are a lot of good reasons why you would want to sub custody things like you know time to market um the the cost you know you you basically have variable cost it's not free to set up a digital asset business um core expertise of a sub-custodian but really you know as we go through this there's a lot of things that you need to consider um you know that maybe on day one aren't as aren't as relevant but you know as you sort of you know go through this sort of process

of setting up an operational business in the digital asset space uh you know there is only one sort of consideration that you should be making um so first up i'd like to speak about is sort of the timing restrictions that you face uh with the subculture and usually they work from a you know an sla call custody 24 hours get your assets out uh you know this is a 24 7 market or even in a traditional assets there's 20 you know almost 24 5. um so you need to be able to move at the speed of the market and really you need your assets you know when there's volatility you need them fast when you need them the most so um i gave an example you know we serve probably the majority of the regulated brokers and dealing desks uh who operate in the cryptocurrency space

um they settle post-trade over the firebox network so it's quite different to you know maybe pre-funding in pre-funding with an exchange um you know those those folks were trading 24 7 on march 19th march 19th was 30 drop in bitcoin i think it was in about about an hour every single exchange had problems they went down there was trouble crediting deposits uh making withdrawals so if you're moving assets from one to another or changing up your margin um you know that simply didn't happen um on the odc side they quoted 24 7.

fireworks customers settled and they settled on a net basis they settled over 21 billion dollars that day say uninterrupted service uh it's a critical component as uh from a bank to remain operational uh throughout all trading hours um other areas adaptability you know if i can say my own experience working in a bank it's in terms of the systems it's a bunch of systems that don't speak to one another you know nothing connects there's no interoperability and you're going to face that as well with uh potentially with sub-custodians there's often limited interoperability they offer some api connectivity uh you know but certainly you're going to be processed you know duplicating process uh which of course brings a new uh inherent cost uh

to what was supposed to be something that's more cost efficient right this is going to be a cheaper if you do digital assets and implement this stuff whereas you know using in-house custody you can integrate into order execution management systems uh reconciliation reporting core banking systems uh and uh of course important aml and kyt um if i just sort of put a line in there aml compliance pretty much the major players you've got to say they've got their they've got their uh their houses in order these days you know everyone is using blockchain analytics software it's actually a market that you can that you really can put a lot of risk and controls around that said as a bank reputational risk is probably the number one risk that they

want to manage these days you know no one wants to be tainted uh you know with some negative news or anything like that so it's something you need to be able to control in-house it's also saying that you're able to highly automate using in-house in direct custody uh and uh you of course remain in control whereas you do take a bit bit of risk when you farm that out to to a sub-custodian and you know any legacy business that comes back later uh could also risk tainting your operation as well reputational risk very important closed loop usually so i think others have already mentioned you know so the operating model of these you know exchanges and things like that tend to be you know full vertical stack they're the broker they're the marketplace they are the custodian um

that also means that you only trade the products they offer the assets they support excuse me the assets they support and what if your clients want to trade something else well you can't so maybe they'll go somewhere else maybe they'll find another provider so with an open network using direct custody you have the option to add the products and services to your clientele onto much more on demand the time to market of course is much as much uh faster which is around future proofing so you can dictate your own road map i'll come back to this a little bit on the on the next slide uh but of course if you're if you're relying on a trusted partner uh you will

be more aligned to their roadmap rather than dictating your own and then just a final mention on the risk side what i've seen so far in the past few years is you know banks financial institutions in general they're happy to take technology risk and can get comfortable with that but what they're not comfortable taking is things like unnecessary counterparty risk operational risk uh in addition to that and i think also what you're looking at here on the right hand side is kind of what the system looks like yesterday you know farming everything out counterparty risk operational risk to others whereas you've got this sort of the ability to

take this new technology and use it and mitigate some of those financial market infrastructure risks so why would we do continue to make the same mistakes as before so why is direct custody so important my i'd say my career in digital assets started in 2017 when the topic of institutional custody really really took off uh it was more about burying bitcoin in a swiss nuclear bunker than thinking about what might come come later uh you know so that the custody story really didn't uh you know the book didn't uh didn't stop with custody uh it was just getting started and and as many of you probably have

realized you know this market uh it changes so so quickly you know decisions uh uh you have months to make decisions not years so you can quickly lose and fall behind the curve and that is actually stands for any developed business the coinbases of the world's rights at a startup you're actually only months away from cocking it up so if i look at two products and services that fairly you know came in with sort of the 2017 18 to 19 it was really about adding on you know building on top of that custody and saying we want to add the ability our clients the ability to trade and then also lend which are so closely linked that was also a point in time when technology started to reach its

limitations so when legacy systems were starting to be either sunsetted or or complemented with uh use of multi-party computation something that is is pretty much relevant in in every institutional offering these days and elements of using mpc um really getting rid of the single point of failure of a private key ever coming together allowed for a lot more uh uh applications user and able to automate a lot of your processes because you didn't have to worry about you know running over to a piece of hardware with a cube ub key or a you know an iphone or something like that you know you could if and particularly when you get into the sort of you know the traditional sense and you look at uh you know settlements that

take place millions and millions of settlements every day there's no way that's going to be a manual process so npc started to come in and that's of course was required because now the years later you need to interact with the blockchain a lot more things like staking services it requires constant uptime high availability it's it's a revenue stream you're going to leave it lose out on if you're not sort of keeping pace with the market decentralized finance it's not really a thing for the for the banking system yet why because it's very difficult to apply corporate governance and operational governance around that direct interaction with the blockchain many of the providers speaking today are already covering that off so now banks can start to interact with d5 in the grand scheme

of things you know there's a lot of incremental steps before that really sort of takes off in the traditional financial space but you know if you say to you know a credit suisse or a ubs or i don't know of jp morgan say you know you can swap apple for microsoft shares with missing both cash legs in between damn right that saves them a lot of money damn right it's interesting to them but it's it's a long way before we get there but you need to have the technology underpinning all of that that's going to support you through that stage and then where we are today looking at things like payment services again automation comes to mind you know high volume transaction volumes numbers compliance with new you know regulatory environments i think that was probably one of the hard you know the things that

you know banks over the years struggle with the fast changing regulatory environment really uh you know needed banks and banks needed to move quickly you know which is not not the things they do very well so payment systems be able to have an adaptable system a modular system and then of course we'll say is the elephant in the room and what really makes this as a uh you know is tokenization and on the tokenization side if this you know if this becomes a thing it's incorporating all of these different elements because it's going to affect every single asset class that you know a financial institution interacts with so when you're having a conversation with a financial institution they're not actually just setting up a digital asset desk they're

actually need to be thinking about okay what revenue streams am i prepared to potentially give up in future if i don't do this now you know and when you talk about tokenization you know they're considering like do i lose part of my trading revenue from my brokerage revenue part of my credit part of my asset servicing you know potentially liquid certain new liquidity transaction banking you know it's a much bigger consideration what they're doing i think that's why you're seeing a lot of the bigger the houses you know the sixes of the world the deutsche bosses you know i suppose a good on the marketplace side you know if this does become the thing then they won't exist if they don't have the technology that underpins it so um with that

finishes off for me uh thank you very much for your time it's my first time on stage so if you want to give me i'll be in the bar later thank you very much