Transforming Banking With DLT

Transcript

Right. I have the pleasure of introducing our next keynote to you. Jacqu Bung from Halbourne is going to talk about transforming banking with distributed leisure technology. Thank you very much. Thanks. Thank you for coming to that session. Glad to be here today. All right. So, uh, Albourne is one cyber security provider. We are a leader in that space and we come from the intersection of web two cyber security and web three cyber security on one end and the other thing that we do is that we cover traditional institution like UBS, BNY melon in the United States or Fidelity in the United States but also

large web three institution settlement and clearing house like for instance Grayscale and we work with the likes of Coinbase and plenty of DeFi. So I am the CEO and I'm very happy to have this conversation with you today. So today I will be speak about transforming the transformation of the core banking process thanks to DT that will be my topic and how can we do that in a secure manner which is a key consideration when we look at all the threat landscape nowaday. So our mission statement at Albborne is to enable that new digital transformation and we believe that we are faced with the third digital transformation wave that is happening in

the banking world after the first digitization in the '9s the cloudification that started in 2010 and what we do today with decentralized ledger technologies. So what I want to speak to you about in the next 15 minutes or so are those following topics. Look quickly at the history and why the threat landscape has evolved so much and why vulnerabilities have been so taking a big lift as we see also speak to you about those DT adoption in bank with use case how Albourne is protecting the assets of those institution speaking about the threat landscape showing you some of our

technologies and coming to a call to action but let's start with the history essentially because you know that who ignores history is doomed to repeat it. So what is very interesting in 2009 that's the big white paper that's the launch of Bitcoin which is a single threaded digital currency in a decentralized ledger only one function then 2015 that's Vitalikhin that's Ethereum and there we completely change landscape we we go into what I called composable systems big difference it leaves leads of course obviously

directly to the explosion of ICO in 17 to the so-called DeFi summer that happened in 2020 till today where we see the adoption of DT taking its grip within traditional financial institution at the same time we are looking at the future and we believe that potentially in the future every security will be issued onchain that would be a massive simplification of the creation of securities. We also believe that perhaps we will have a unified ledger and we are quite convinced that stable coin will be the name of the game for the trading of

those securities. But at the same time what happened was 10 mill 10 billion dollar of hacks over the last five years. 10 billion dollars of acts over the last five years with a clear acceleration because you know that this year only two billion dollar of money of real money has vaporized because of hacks starting with a by bit that you all heard of. So we are coming to injunction and we need to understand why and the why is very well explained in that chart that the complexity and the capabilities of the blockchain environment which have raised massively.

So from a single threaded as we have seen in 2009. Then when we move into Ethereum and the smart contract, we move into compo composable architecture with things like software development kit with things like for instance virtual computing environment with multiple applications which are built on the building blocks of smart contract. And now fast forward we come to today we add an additional or additional layers of complexity with blockchain interoperability with layer two coming on top of the layer one. So those bridges those oroxs and so on and so forth and that's why you see that arrow

the vulnerabilities are going up the ladder at high speed. So we have a very complex extraordinary complex and exploding ecosystem which start with a DT with a layer one and then you look at the insurance and you go up to custody. We are speaking about custody just a minute ago and you have all those actors playing around in an exploding environment because just stable coins today are worth 250 billion and we expect the issuance of securities on chain to be worth 30 billion 30 trillion excuse me in 2030. So is it unstoppable?

Yes. But are they unstoppable hacks which will be happening and that's a big question that banks are asking to themselves and that's why I will give you now with three examples of banks of DT initiatives how Alborne has been contributing to the security of those initiatives. So those three examples are extremely typical of what a bank can do with a digital ledger that cannot be tempered. So let's see. So the first example is very easy that crossber and commercial payment and you know that in crossber and commercial payment if you do those things onchain you move from those 72 hours of uh transaction time

between the moment of the customer purchase and the deposit on the merchant account to something like 10 minutes. So it's a massive efficiency gain and the biggest pilot in that domain has been conducted in Asia and it's based on on CBDC and it was really a big big initiative implying multiple institutions and Albourne has done the complete architectural review of all those junction of all those intermediary in that initiative that was our contribution. It was a successful implementation and we were able then they were able finally to get to that settlement time of a few minutes instead

of the three days we were speaking about. The other example is based on the same kind of philosophy but move to the next level that the clearing house settlement and clearing house are the man in the middle. Will they be gone? And this one is very interesting because if you see on the right on the left hand side excuse me of this chart you see the traditional settlement with a central registry with a central repository and you see on the right hand side of that part that we can have atomic very fast onchain settlement if you remove that man in the middle and here we worked with one of the leading clearing house and not only did we review the security

architecture sure of what they do. But in fact, what we actually did, we did build the entire DT based system together with them. So it was really secure by design right from the start and it was very successful initiatives that could really reduce the latency and position that clearing house as being a leader in that specific domain. So it's almost disrupt yourself. If you are a clearing house, you do that, you are disrupting yourself. And the third case or the third illustration I would call that the flagship that's the big prize that's the issuance of securities in that case bonds on chain and we have worked

together as you can see on the chart with UBS that was an initiative of of UBS together with other partner SBI DBS and the monetary authority of Singapore to create the first issuance of security onchain in that case public chain. It was made on Ethereum so on an EVM environment and test it live between those partners. Big success what Alborne has done in that specific contest. We have context we have done all the smart contract plenty of smart contract on Ethereum as you can imagine composible architecture. We have done all the review of those smart contract and we have done also the initial design and by

the way we are the official UBS smart contract assessment partner moving forward. Now there is a big if you see on the bottom uh right of that slide which says okay that's the big price to create to issue securities on chain but for that you need to have equivalence between the underlying securities for instance real estate and what you have on tokenized on the chain and that's not the case yet.

So let's have a quick look at regulation because regulation plays a significant role and that's a regulatory adoption chapter I wanted to talk to you about. So real quick, we don't need to spend much on the fact that stable coin for instance is bigger than Mastercard and Visa together in 2024. It's already six trillion in the first quarter of this year which is a trajectory for most probably 40 trillion of transaction which have been settled and executed on stable coin and there is this regular this regulatory acceleration. Nika has come into force this year. As you know

in the US they have also removed that SAB 121 which was forcing the banks to have the cryptocurrency of their customers on their balance sheet. It's gone. So it's really accelerating the pace but this acceleration of the pace has also some limits. And you can see here I I took the initiative to make that comparison because it's an interesting comparison. You see on the left hand side the ambition of the US regulator or the Senate you have plenty of bills which are cooking. You see in the middle what MA which is the key regulation for crypto in force in

February is for seeing. By the way, when I say Mica, we all should think about Dora because if you are within the MA, you have to apply uh the the digital um operational resilience act as well. So it's a lot of to think about if you are a web three player in that space. So what you can see on the slide is that on the left hand side it's all aspiration in the US. You see in the middle mica where they are on the right hand side where Switzerland is and you take the second line equivalence of tokenized asset and underlying asset it's not in MA it's for seen in the US aspiration and it's here in Switzerland since August 2021 so we

are really clearly leading the pack. Next one we were speaking about custody before. If you are custodian of crypto you are regulated in Switzerland by the FINMA. it is acted. It's not not so clear by the way in the ma case and it's an aspiration for the US and last but not least ability to trade 24* 7 is given de facto in Switzerland it's a plan and ambition somewhere else by the way call to action you know there are some uh shadows coming on the Swiss regulation because of the credit Swiss collapse so I think in our industry we should be all pay paying attention to what is happening there. Okay. Threat landscape. Now, it's nice to have

regulation, but there is a big threat landscape. I was mentioning before the 10 billion dollar value of axe that happened in between 2020 and today. The key message out of the slide is the following. You see that six billion out of those 10 billion came from web web two traditional cyber security intrusion through the traditional cyber security attack vector. So you have to have a comprehensive and holistic approach when you think about your your project or your initiative because it has to be comprehensive and it always start with a traditional spare fishing and all the

type of attack you can imagine from the web to world. So what is interesting when we speak about that you see on the left hand side all the framework security framework which exist in web two you will recognize so two type two you will recognize NIST the European N and so on and so forth plenty but when we speak about web three now there is plenty of initiatives but nothing established we have things like the BSSC for instance blockchain security standard council but it's only for the tiny technical part okay another one which is mentioned up

there under C4 that the CCSS cryptocurrency security standard another corner okay so it's missing and what we are doing at Albborne you see we are member of all those committees we are trying to federate all that so an example is what we have achieved with BVSS So some of you knows if you are working in in cyber security there is a we very well established measure of your vulnerability called CVSS for common vulnerability um scoring system and we have created at Alborn the BVSS which combines the exploitability and the impact of a hack. It also combine the

scope and the referibility of the hack and it's a it's a grade between zero and 10. So it's open source everybody can use it and it cover all the layer of a blockchain of a DT. So that leads me to the final chapter, Halburn solution. You heard a lot about that. We are at the intersection of web two and web three. We are able to do advisory services, secure by design, education. We do a lot of education. We are the biggest educator of BNY Melon for instance, the largest custody in the world in New York City. And we do all those assurance services on top. And that's a pre-announce a preview. You have seen

the complexity of legislation especially if you are deployed in multiple locations. We have we are we will be launching uh this summer in an MVP and later this year uh solution which is AI based on the called the compliance pilot which will be able to tell you what is your business what are the regulation you are subject to how to cope with those regulation given your infrastructure and as I said your location and that will be fully automated based on AI and part of a bigger solution.

Finally, a quick call to action momentum. We have seen the bank will adopt DT, but it's embedded with a lot of risk and they are mindful of that. Regulatory clarity is coming, but the threat are I would see multifaced and you you need to deal with that. And finally, if you are a DeFi, if you are a web three and you want to work with big bank institution, make no mistake, they will ask you to have all the badges of honor to make sure that you are secured because you are part of their supply chain. Thank you very much for your attention.

Thank