The Evolution of Digital Assets Adoption at Banks

Transcript

okay so first of all it's really nice to see uh all of you here today uh it's been a a great journey with the crypto Val Association having this idea of organizing this uh this event just a few months ago and uh we buil up a team and it's it's amazing seeing all of you here uh I think we also timed the market pretty well so next time you you want to know when when is the oldtime ey just uh just check the crypto Val agenda so yeah uh great to have you great great uh great uh great Vibes today and uh we will uh do this uh this panel together so uh this is the evolution of digital asset at panks um I have uh I'd say an

OG's uh panel because uh most of you are all of you are one of the uh earliest adopter I know in the crypto space with all your your your previous uh experience and your current role within a within Banks so yeah what right 2017 I think that's the year where everything started for for crypto and banks in Switzerland uh seven-year Journey so we started from uh a bank uh the first bank is here uh Swiss quote uh to uh to allow crypto trading and now I think it's roughly 18 to 20 uh Swiss bank which are active to some extent into into into

crypto uh um now we are not only doing trading there is a of course custody payment staking lending tokenization uh so that's a clear clearly mature uh project and uh it's been built thanks to the adoption Progressive adoption of uh of the Swiss banks I think we are still uh one of the Pioneers in terms of uh of country um first European Bank to allow uh crypto crypto trading back in 2017 SS quote 17 17 2017 first in Europe uh then we got the first finma regulated Banks we had Amina uh just before we'll have Signum uh later this afternoon then the private

Banks scam Arab Bank 2019 I think 2019 uh julus be B Mar manes you name it then the conal banks and and of course incor you said me that you were in course started back in7 18 2018 or 17 so yeah exciting uh panel ahead so yeah by the way I'm Jeron Bay I'm the vice president of the crypto Val Association I'm also uh working for adnovum developing uh the rod market for fintech and crypto for this engineering and cyber security company and um yeah today I have the chance to have three panelists um so let's start with uh with

ro uh from uh from incor so I let you say a few words about about about you your journey into crypto and uh and your current role uh I thinko yeah sure happy to um personally I got into crypto about 10 11 years ago I didn't think of it uh as a job back then obviously um but things develop um I got uh after a few fex I got into uh Consulting for a company in OA also sponsor here today and my boss is here too so um after that I got to or during the that time I got to know inco Bank who was a client of mine I uh accompanied them into the journey into the world of crypto and uh ended up just to be so

many other exciting things that I felt need to be done so I I moved back into banking excellent thank you Ro um then uh Roman yeah thanks for having me so basically same uh we have similar path with ro that disc crypto in 2013 and jump into the industry back in the day we were not so many uh we were only few of us and I joined Arab Bank in 2019 uh 2020 sorry uh to basically develop all the digital assed services and to bring like a a new kind of clientele so how we do that uh what we do at Arab bank is

Arab bank is a private bank he a sister company of one of the largest bank of the Middle East uh Arab Bank PLC soank sand we have like three components which are make us quite unique and that's why you know it can apply you can apply blockchain and digital Assets in all the fields in all the verticals we have private banking obviously since 1962 but we do commodity trade Finance which is also like one of the large part of of our business and and treasury activity treasury managements so these three business lines you know can rely on blockchain and the bank was very early to understand you know the PO first of Bitcoin as kind of aspirational store of

value or digital gold but also like for all the business related letter how we can build the you know World infrastructure to have frictionless you know like exchanges around the world EX Carlos so for me it was also kind of early although I was too young back in the day so I discovered the concept of Bitcoin in December 2010 I even mined back in the day in 11 I didn't even know how to configure things pools were just born so I was mining for other people for a certain time so for me it was a a discovery thing uh and I treat Bitcoin at least until 2011 as something funky that I wanted to use with my friends to to exchange value playing poker so it was a very a very

simplistic approach uh we tried to to do it of course summer came and after coming back from Summer everybody lost their wallets or lost lost interest I still got a lot of traction into the space and and then I I kept it up professional side nothing nothing to do with Krypton till 17 I was working in asset management and private Equity uh in 17 I started to see okay this world of crypto of mine that now it's a relevant thing in the in the economics let's see what we can do with the utility part which is what interested me since the beginning because I had more of a scientific background rather than an economical one and uh so I also started projects around to iation and and things on along those lines so it

was really an exploratory path for Swiss squat I think it was barely the same so it started way before I joined the company I joined two years ago no no more than that uh Swiss started in 17 as you said as a First Bank uh I think in the arean of ssot is to innovate to challenge uh the code as as we say internally in the bank uh and we want to be one step ahead and we thought that crypto was the next investment vehicle or the new as they call it now the new alternative assets as Blackstone would say in their publicity and uh yeah I think alternatives are here to come crypto is becoming and Bitcoin especially with the aspirational uh Reserve value currency aspiration that it has it's also becoming uh some kind of the most liquid alternative

investment that you can find uh you know this is has been the the Myriad of private equity for the last 20 years now they want to to try to to put things in the table of retails is getting more complex Krypto already did it so I think uh we have a very very interesting times ahead of us in the space so yeah we clearly have a very well balanced and diverse uh panel so we have a B2B Bank a private bank and a retail bank uh by the way also zurk Geneva V uh we are diverse at CV um and uh but you you you you shared one common point you your Banks were all pioneer in in their all in their in in their field so let's let's let's go back

a bit and I know you were not all of the all of you working at at the initial but what were the initial motivation for for for your Banks to jump into this this crazy uh especially 2017 18 19 crazy world like facing so many challenges so what what which motivation initial motivation maybe you we want to start well for us was actually quite easy because as you said we are B2B bank that means that we serve other priv Banks now when you have so much exposure as we do indirectly to the market through these private Banks uh crypto was a topic that came quite early when the first clients uh of these private

Banks started asking about crypto obviously the request would come to us and the question care well this is another asset you do bonds you do equities uh we want to do crypto with you and uh this is why why we started the process we didn't it it's something we always do right the new request comes in uh you cater to it in the beginning it was a brokage in custody it developed over time that came more offerings to it there still offerings being added uh yeah and and Roman arabon was I think the first in Geneva uh moving into crypto why yeah I think why so early because uh because they got the idea of Bitcoin very early uh when I met Rani

jaban in the early 2017 so before the Bull Run uh it was the first Banker to catch the idea of Bitcoin and the potential as an alternative asset he did understand very quickly in less than 20 minutes that the separation of the state and the money was Bitcoin and that was like a a great journey because uh as a managing director and uh and head of Treasury he has pushed the idea internally to say like okay we have to list this alternative asset because the Fiat system is currently like a inflationist and we have to offer like it's a growing asset basically and it will grow over and over the time and so far you know like fact or data has

proven that he was right so the transformation of a Traditional Bank to a modern blockchain ready Bank you know takes time it Tak some willingness you know from the board from the executive managements a real you know like change happen only with the human behind would do understand or who do learn the technology who do want to understand who do who are willing to change and that's uh what makes like a a successful transformation like five years later we do custody so we have a full solution of custody of trading desk with multiple liquidity providers we do lending we do staking we do advisory discretionary and

even nft so we are really at the Forefront as a bank as a Forefront of innovation uh but because we have a demand from clients and there is a need when you have like a substantial amount of assets the self custody is not enough you need to think about the future of your generation multiple generation you need to think about how you custody when you are a company and Enterprise and how you you manage like all this risk and that's why you know banks have to position I mean at at least us we we decide to position ourself right Carlos 2017 first not only in Switzerland first in Europe Europe Europe too yes uh it was I think the traction was quite quite

easy to get because first of all the first wave of of crypto GS as you said before were very related to technology uh our bank is composed mainly of Engineers so there was also a bit of traction internally from an employee and also top management point of view uh mainly one of the founders so that conjugated into the fact of saying okay we want to get exposure to this we want to allow our clients to access it was not necessarily a fully-fledged client demand like private banks that you C are more uh well both of you have a more let's say OnDemand work to do like similar to consultancy in our case being more retail in general we have a good mix in between okay this is a good idea makes sense our clients are demanding it to certain levels let's try and and

let's see what happens and for crypto it was a little bit the same we started with a basic offering I think we all got to the same route that for example the new Canal Banks entering the space are doing orus Finance now we get the the top five top seven top 10 and then we we grow from that first it was most of the operations was outside of our bank uh of course external Council Auditors Regulators myriads of questions myriads of it challenges that probably a few people understand like oh yeah you want to put more than three zeros after the comma good good luck with that our core banking doesn't support so you need to rebuild the thing then you need to revalidate with an external auditor and then the external auditor would say okay this makes sense now you can go to the

regulator then you need to re-explain to the regulator so uh I'm coming also from Venture Capital myself uh and talking with fintex I'm like yeah you have problems like you don't have a regulatory framework congrats for that but the internal hurdles that you get other than let's say internal politics and uh board uh management compliance is a there's a a lot a lot of work to do so you said problem so let's double click on the challenges limitation issue that you had to face since the beginning until now for is it more technological regulatory maybe you can name name a few I don't know who who want to start want to

start so for us the the main Challenge from a product point of view facing retails is that the product is seems and is different from what they get in traditional crypto exchanges so that's the first and biggest challenge for for us because why because all of these problems that you were mentioning or hurdles that we need to to sustain like uh we cannot have cryptos on our balance sheet it's like holding some toxic uh mortgage back Securities back in 2008 so we need a a tier like of reserves that is unheard of and depending on the size of the bank it can goes up to 1, 250% meaning essentially you cannot hold anything on balance sheet so Landing operations get a bit complex and a bit uh uh a bit more difficult to get then

the the example that I was putting of yeah Bitcoin has a a nominal value today of 60,000 or whatever it's now because it's changing every minute $660,000 okay you want $10 in Bitcoin then you need four or five digits after the comma the core banking systems of course were not thought to to work like this and our entire Banks run on these kinds of software so I know it horor and I guess you have way more many more examples like this yes I agree with you Carlos um I think it's it's really about like you need to be like a critical thinking and problem solver uh because you face like back in the days when we started like uh 2018 to think about like how we will integrate uh into the core banking

systems they were not ready for that and still not really at some point some of them we have a lack of support like transforming like a monolitic core banking system into something modular because blockchain is about modularity blockchain is about like building microservices that can interact between each other and they're moving super fast so these parts are moving parts and you to be able to have resilience between the services and to be able to update them so if you have like a monolitic system which you don't control then after you end into like bottlenecks so this is a reality uh this is also a reality with The Regulators you know to have like some interactions to make sure

like uh you can get the approval before launching something because you're not a startup you're not like a financial intermediary but you are a bank with a license which require a lot a lot of checks and audits internal external and so on so coming from the startup world or traditional like's say corporate uh it and so on moving into a bank was um a discovery internally because I I I work with external Banks you know as a consultant but when you move inside then after you you face some challenges but there are this is obstacle that you can bypass seriously if you are if you have this real so again it's a question of first education training internally you

know learning you know like teach to your clients you know about like why you know holding your own assets uh it's important I mean obviously you can use ETF and so this is great but holding your own assets has a different it's it's really different in terms of power what you can do with it and this is something that people have to learn people inside the bank outside the bank and we we Face obviously few challenges always but there is no blocker so we can always move forward but again you know as a bank you know the risk management the co the compliance department is also key uh as said Pao previously during his meeting I I really Endor it like you

have to understand like if if people from the compliance we have talented people in our compliance Department who understand very well our clients and we the most important thing is to understand how to unboard them how to feel this client secure when they open an account with you and not feeling like criminals you know what most of the banks are doing when they are shoting down the accounts because they don't understand any transactions the technology of blockchain is much more like easy to corroborate that any other technologies that they use to to use let's say paper thank you yeah you you mentioned education and I think education was really a big part of course core banking

systems I mean they're not made to change FAS and the the but these issues aside there were a lot of questions that just have never come up before like for for instance assets you usually keep them with a custodian you have them somewhere you can call someone so suddenly you have this idea that you're going to keep your own key so what does that mean do you need a counterparty limit for the technology provided that gives you the HSM modules or not uh what about the exchanges well we need a three years of History uh on U company reports before we can set a limit for a counterparty well they haven't been around for 3 years they're still new so all these

things needed a lot of Education a lot of convincing and many of the conversation you're not only have once or twice but several times because there's internal audit there's external audit there's the finma there's your board um but after some time you you get you get good at it yeah but I guess it's also the same Circle that the community believed you know I remember the the first comments in forums were about geeky technological things a bit of politics Etc then it became like what lawyers do you recommend what jurisdiction should live on or do you open a bank account then it was like okay what do I do with the money now this is becoming huge now should we go to private banking should you go to yourself so I Banks has the same we had the same Evolution we were like okay

let's try it willingness resources invested now what is the next Frontier and what is the next things to come so it's a a really really Dynamic and interesting thing yeah and that's true about uh you know like documentation with counterparties when you want to trade with new counterparties you have some credit risk you have some limits some limits you know for deposit or to manage and how you do when the counterparty doesn't have the documentation so nowadays all these like uh new players in the crypto space or crypto exchanges they are like up to date but back in the days in 20189 they had like almost nothing they didn't want to share any AUD they didn't want to share like any B resolution and so on so basically coming from as a bank you know with all the different like

players you you are already in the space with you know you had like a discrepancy about like what you expect and what you have so it was uh a bit difficult nowaday all this um layer all this problem has been tackled uh now it's more about like how we build like a global infrastructure to make it like a more efficient more Capital efficient and and this is like the big challenge where we stand but in Switzerland as a bank uh and again it's different with uh with startup and fintex which I I think it's it's sad but as a bank we have all the tools to build the global infrastructure so it's a willingness so are we all together taking the opportunity to be still at the Forefront

of innovation uh in the blockchain space as a financial Global you know leader or do we let it to other countries which will will run much faster than us if we don't take this opportunity yeah we're no longer alone as Switzerland as a country is no longer alone like just check Comet Bank DOA Bor in Germany for example the last moves they had all the big banks in Spain they have 100 plus 500 plus employees on their blocks IND divisions and they do things and again they see blockchain not necessarily as we are envisioning it today in Switzerland as an investable investable asset class that is alternative plus some utility levels plus the tokenization aspect but also as okay I have internal problems I need to connect

to multiple Banks and this is this is a mess between plenty of jurisdictions so yeah it's a solution and a problem yeah here we definitely need to work together I mean in the beginning of uh crypto valy there was a lot of like oh my competition is in soup my competition is in Sur but really our competition is is is is in Singapore it's in Dubai uh probably the US the and these jurisdictions are moving really really fast so if we want to keep up we need to work together we need to to combine efforts uh also on the political side uh to make sure that regulations and laws continue to evolve in a way that doesn't uh stop the industry from innovating absolutely yes yeah I can't I can't agree more that's also the positioning

of crypto since the beginning is not zuk versus Z versus Geneva or versus Nel all together uh to continue what we've built and now play on the on the global field so thanks for the hisory and let's come to today March 6 yesterday uh alltime High 69.2k US dollar so uh what does it change uh do you see emerging Trends uh new demand uh new products what what's happening right now like uh it's a it's it's crazy period tell tell us what you're living on everyday basis well uh if I take this opportunity like ETF has legitimate uh Bitcoin as a

financial asset in alternative financial asset within any portfolio so we did simulation uh from 1 to 5% like on a traditional portfolio and it's already like outperforming like traditional uh portfolio only with 5% diversification so the risk is pretty low you know against the reward but for most of the people uh they were waiting like an approval from like uh you know like big um asset managers like black Rox that they vet that basically Bitcoin in is an asset class and so far is the most successful ETF launch ever better than gold better than gold much better is like 50 billions right now so at some

point you know like uh we see new cycle of people New Commerce but W institutional is this bull run fueled by institution or do you also see retail like we see we see institutional uh and and also obviously people we invest into ETF are people who can access not to bitcoin where they could not before except if they were using Banks like us but we were not so many right so these people know they can access uh very easily to bitcoin and there is like a lot of assets managers know ad you know advising uh you know this diversification so people are still probably like in the way to get some capital gains you know they they don't

think about like uh you know aspirational store of value so they want to take profit probably like but people from the last cycle they did learn about Bitcoin they did start to understand you know why it's good to order probably like to Edge against inflation your Bitcoin in 2017 or in 2014 has much more buying po than you know your fat currency nowadays and it's every cycle you can see that with one Bitcoin I was able to buy a watch in 2016 and this watch now could be a pck Philip why it was just like a kind of cazo you know right so this is the example of you know why Bitcoin is probably like protecting your your wealth in the future and why people want to keep this kind of Assets in their portfolio as a longterm while

ETF probably some of them they want to take profit like a short profit during the cycle so let's see how it goes caros what's happening on your on your daily uh trading like it should be crazy to be a so we present results soon we are publicly traded okay can you share few inside no uh you can the only sentence I'm allowed to say is like we go volumes go up with price and volumes are related to revenue so you can do you can check our stock uh I think it speaks by itself so I'm not saying anything perjurious against it but no what we see is first that retails really are hudders as we said back in the day no it's there's a real accumulation from retails from the before from 17 to now this is

something this is a trend that has kept growing and you have more and more new clients entering and more and more old clients keeping up with the with the reinvestment even though Bitcoin was uh for two and something years in a complete like Flatline and had not too much price action but at the same time we also see and especially onchain because this is a bit more nichy and you need to to check because institutional are not going to to coinbase and and binance and buying with stop limits and limit ERS like no they're buying in OTC desks and you can see I don't know if people here know for example in Twitter you have wh alert that notifies you every time there's a huge movement in in relevant blockchain and you can see suddenly volumes of big movements spiking and it's not only people the

investing from the asset because now they've becoming extremely wealthy and as you said before 500 Bitcoins was like 10 blocks of mining because mining back in the day was 50 Bitcoins for mine now suddenly it's like okay I have like a few multiple million dollars in my hands what do I do they Panic so we have this kind of of people too but for the ETFs I I'm not sure I think uh there's the all these entire world of uh Sovereign investment funds uh and privately managed uh Pension funds in the US Canada and all the all the Anglo-Saxon countries plus Middle East that are now going to move very slowly into the asset but very slowly for a for a fund that manages $550 billion is like okay let's do a small allocation one billion yeah

that's literally the the volume the net inflow that you can get in in in binance in five days for for an asset class like Bitcoin so I think yes there's a clear institutionalization I don't know if institutional will play the game of entering and exiting I'm not sure about that to contradict your your point there I'm not sure uh we also see uh endowment funds from universities in the US that are also a good reference point like Stanford and MIT that are now getting seven and two or three% allocations respectively so it's a very relevant figure for endowment funds that are above 10 billion so yes I think this is going to have a a huge impact also volatility I thought was going to be slightly reduced not the case we 69 69.3 on coinbase 69.2 on Kraken 69 on on

binance then we went down to 6259 even uh with some liquidation so it's a process I think uh we will it will become a little bit more stable not as gold or or or an asset like very stable asset class it will be still uh because liquidity is not at the Forefront of of crypto today thank you but yeah it will be interesting okay last five minutes Ro your your point of view from from incor what's Happening the the the new trends the well I believe that we going to see in 2024 for the first time some more professional things that go beyond just cryptocurrency I mean Bitcoin ethereum they they're now being taken seriously as an AET class you see uh research

published about them um but we forget that there are other things that we can do in crypto there are assets we can put on a blockchain there ways we can trade these you mean tokenization for tokenization and where you have uh assets traded on on on decentralized exchanges uh in in ways that haven't been possible before now of course it's going to be a journey we will probably first see uh uh tokens getting traded on proper public exchanges I mean the way uh we we already see a uh traditional stocks being traded and and that will continue from there and uh in in this respect I think we're just finishing phase one uh of many

and I think it will be sudden too I think for the moment he's quite quiet is in general mini projects or projects that were financed privately before they Tred the St uh coming from the Ico summer of of 17 I think suddenly we will have like a 10 15 25 50 billion IP stto rather than an APO and then people will start to notice like what was this and I think from that point uh they will see efficiencies they will see the time it saves because the financial system is absurdly complex today like when I try to explain to my non-financial friends uh how a stock moves when they buy or sell it on the broker is like surreal the level of interchange and third

parties are involved in a single trade it's it's it's ridiculous so St talk about security token offering so we we've seen as you say the Ico wave back in the days uh and and still continuing but what's what how can we really go into the security token offering like uh in Switzerland we have the regulation but what do we need uh because honestly so far security token offering is quite low um so what's your point of view on that infrastructure it's simple as as that thing to start with infrastructure willingness and secondary Market maybe no no yes infrastructure an exchange is a piece of infrastructure it's not only

holding the tokens it's legally building the the the um because it's not as simple as it seems like he let's put a token when it's a security you need an entire legal ENT that will explain uh what do you have and what is the reflection of it especially if you want to do it natively digital so yeah I think infrastructure is like the key part uh if I'm a client of vontobel or or a bank that is well know vontobel has some some level of but a UBS client like normal one they want to access an APO it's possible they want to access an st not for today so so I think that development of infrastructure that is happening in big Banks not with fancy projects but infrastructure boring project it's going to be the key and then the products that's a second piece

uh once you have the infra then you need the product crypto was a product first yeah probably just you add uh I mean technology of course is key we need to have this Global layer but also like for like second Market how you assess the price you know of stto if it's like a little company you know how you can verify because right know the cost of production of information is is almost zero with gpts with AI we can produce like endless information but the cost of verification of the data is increasing so basically uh we are overloaded by data and we don't know if this data is uh correct or or not and then after like on the second Market you know it's even more complex to find you know some

accurate data because it's really about like how you you have information of this uh on this St so it's a chicken and egg you need the liquidity or like second Market to bring new clients to stos but also you need to have information more information uh on this okay I I I see the time I just want to finish on a very simple uh phrase from each each of you like uh the trends to to look especially this year 2024 if you have to name one one thing to uh we want to we want to start the who want to start Ro yeah I started with with it earlier I think tokenization is

going to be a big thing in 2024 with upcoming secondary markets okay uh where ironically banks will probably play a role in giving and vetting access yeah correct took it from you took it from me Ro that's yeah that's slightly unfair yeah on technology side I would say like zero knowledge proof you know privacy on blockchain is key and the scalability because so far like uh as the time as we speak fantastic you know we see the price action but the reality if we want to add like all the real world asset on the blockchain we have limitation on transactions that the TPS basically and the transaction per second are highly limited everywhere on every blockchain some of them they are

stop they stop some time to time which is like currently like a huge threat uh there is some new blockchain coming uh there is some new infrastructure and basically like the combination we'll see probably like a uh um a correlation between like exchanges who are keeping like their um their engine the trading engine and also the banks we will keep the custody of multi assets and multic collateral assets yeah you said new new layer one uh ZK zik native there is one just came to Geneva from the US Geneva it's Mina Foundation CV member I think there are some representative in in the room so yeah exactly what you said so tokenization uh ZK are knowledge last last R so I agree with ro concerning

tokenization so it's unfortunate uh but I would say also uh Bank bankar isation of crypto uh I think there's crypto has reached the entire retail space more than than what we thought especially in nonwestern countries I think now it's going to be the time to like okay now crypto and my bank are are the same thing so Bank Ariz of crypto could be also considered a trend and more Banks so I as I said in the beginning roughly 20 Swiss banks are active into crypto right now I hope next Edition next year we will at least double or triple and some of you who are here you will be on stage with us so yes thank you very much it's been a pleasure having you thank you and uh let's continue