CV VC Global Report - Custodians

Hello everybody and welcome to our fourth CVVC Global Report event which will be about the sector custodians. I hope all of you are safe and healthy during those crazy times. So before we start, I would like to give you a quick introduction to us, who we are and the report. I'm Nicola Reinbold, Incubation and ecosystem manager of CVLabs and CVVC. CVVC is an early stage venture capital investor with a focus on startups which build on blockchain technology. Based in the heart of Switzerland's crypto valley, the company invests in all stages of crypto and blockchain developments from incubation to growth capital. In addition to venture capital investments, it operates its own incubator and ecosystem. Co working spaces in Switzerland, Liechtenstein and Dubai. Advisory and events Blockchain technology has the potential to significantly impact many industries and CBBC believes that the next third waves of large tech companies will be driven by catalyst technologies like blockchain, alongside AI, machine learning, optimization and IoT. Hey, and big news. Applications are open for a third incubation batch which will start end of January 2001. So apply now. Or if you know somebody to apply, let them know because the deadline for applications is November 20th. Now the CBBC Global Report, created by us in collaboration with PwC Switzerland and distributed by Cointelegraph, is a new periodical report that highlights technology trends and showcases top global blockchain following. Blockchain in art brokers in crypto banks, crypto exchanges, custodians, market makers, platforms and protocols, token issuance platforms and venture capitals in blockchain. This report is rather a soft one. That's why we do events on each sector like this one custodians, so you can get deep insights from experts in the field. So now let me hand over to Michele who will be moderating this panel.

Hello everyone and thanks Nikolai for the introduction. My name is Michele Federici and I'm the head of blockchain engineering at Sebabank, which as you maybe know, is one of the first regulated crypto banks. And yeah, for this reason, as you might imagine, a fairly large portion of my time is dedicated to custody solutions and innovation. So I'm really excited to be here and to discuss about it. We have many interesting people here today. Adrian from Metaco, Marcus from Bitcoin, Swiss again, Peter from Custodigit, Alexandre from Ledger, and Eric from Challengy. Thank you so much all of you for being here today. So let's start. I. I would like to start maybe with a bit more broad topics, just to warm up a bit and then hopefully, especially if the time allows us to go a bit more into details. So I think it's pretty clear that the digital asset industry changed a lot in the last few years and now more than ever, it's critical for institution to get involved and be prepared. So in your opinion, why is it so important for institution to be involved and prepare to hold digital assets? Is there someone in particular who wants to start picking up on this topic?

Well, I'm happy to take it, Michele. So first of all, good evening and thanks for this opportunity. What we see is that there is a growing institutional demand for digital assets and cryptocurrencies. So there is obviously first of all a need for infrastructure where the demand that is coming, where companies need to invest, retail investors want to invest in cryptos, is served with well prepared and well established and trusted entities on the market. Now, beyond just the need for such solutions, there is also a risk of disruption for the banking industry. I think we've spoken about this for 10 years since the creation of Bitcoin. But the truth is we know that today that according to McKinsey that 38% of banking revenues are related to payments. And as you've seen the last two years, we see more and more stablecoins, payment tokens and initiatives like CBDC which may be disrupting this entire revenue stream for banking. So I think those two aspects, one which is institutional demand, but also the other side, the threats and the risks are becoming more and more relevant for banks and we see that materializing in banks adopting digital assets.

Sure. If I may. Hello everybody. So I'm Alex from Ledger Vice President and I think I can just confirm what Adrian just said. I think the financial industry is really experiencing a revolution. Let's say it's maybe a continuity but for me it's more a beginning of a true digital transformation with those new critical digital assets coming from the crypto DAPPS until the CDBC and stos. And I think that today those critical digital assets really bring that new operational risk such as the key management. We're going to talk about the way that you cannot, you know, the irrevocability of the transaction and the openness of the networks. And regarding the custody, it's really that, you know, we have the crypto born custodians that they really created their own solutions and it was mandatory back to 2014 or 15 and now you see that the next generation of custodians that need to either acquire actors or go back fast to the market so for me it's very important to be prepared to hold those digital assets as more and more institutions are embracing that new paradigm, which is the blockchain and with the benefits of the financial services. And it's really important to think about how we can go through that, let's say new generation of custody, leveraging existing technology as well as thinking about the new services we can deliver.

Maybe I add a little bit on that. Right. Peter from Cast2Digit here. We talked quite a lot about the risks and disruption which may come for the financial service industry. But I also see there a clear opportunity, business opportunity for the financial service market with crypto or digital assets. We actually have a new asset class in the market which can be served to end customers. So it's also a business opportunity. Why institution should prepare for holding a digital asset. It can be right that there's an additional revenue potential which they can tap into. That's really on the new classes, new bankable assets they can serve to their customers. But we also have then maybe a little bit on the longer term the already existing bankable assets which get tokenized. And there we see quite efficiency potential and synergies which bank can tap into. So it's really also a revenue opportunity banks can actually get to.

Thank you. Also, this is Eric from Changely. You also have an interesting period at the moment to where there's a lot of institutional mindsets that obviously want to enter this space but can't because of regulatory restraints. So, you know, obviously we understand that it's very clear that, you know, assets at the moment are attached to a personality. And it's very important that you know that personality is obviously responsible and recorded. And, you know, so if something happens or if you want to prove ownership of something that that person or entity is responsible at the moment, there is no specific laws around tokens being that personality. So a lot of the initiatives around ETFs and various other institutional products that obviously are waiting to be launched in this ecosystem are being restrained at the moment for regulatory friction. But this will be very clear and it will sort itself out very soon. You have the. We're still the size of an amoeba or a flea at the moment. I mean, the whole ecosystem is a quarter of the market cap of the stock of Apple for Bitcoin. I mean, when you put it into that context, it's like, well, why the fuck would it be interested interesting for institutional traders and quants and everybody else to get in. It's not yet. It's still minute in the grand scheme of things, we all might think it's fun and games and it's exciting and catchy and what have you, and it is, and it will be even more so. But in reality, it's still very minute. And the regulatory. Is currently stifling the progress of institutional adoption. And we're seeing more coming to play, obviously with DeFi and everything else happening at the moment. But still, we haven't seen that huge push yet. But it looks like it will happen, and it will probably happen without most people being prepared for it. Whether that happens in the next six months or whether it happens within the next 18 months, I do not know. But myself and lots of people I know are obviously preparing the necessary means in which to obviously start taking in institutional financing and creating the necessary structures to obviously facilitate these institutional people once the ecosystem is ready to handle it.

And I will totally mimic your sentiment here, Eric. My name Marcus, from Bitcoin Swiss. In that we're at the very early stages. We're all here because we believe that tokenization and crypto will revolutionize the financial services the way we do financial services. And right now, for all the institutions, the time is right to invest in the infrastructure of that new way of doing financial services, which starts with custody. You need to be able to custody assets as part of that new way of doing financial services. Then you need the payment rails and the tokenization, et cetera. But the putting down the baseline of the infrastructure is custody.

I think Eric picked up an interesting topic, actually. So basically, trust me, and because I see that as more entities get involved and the value under custody or locked in any way keep rising, probably the first, which I think it's a basic but fundamental question that both privates and companies ask themselves, is why should I trust one solution in favor of another?

To the point where, I mean, you need a bank. You need a bank or a tier one bank to be able to provide a swap for Bitcoin. You need to be able to say, okay, bank, are you going to underwrite this no matter what? It hasn't gotten to that point where it's natural in terms of its narrative. That in itself is restraining so many different businesses and people that want to enter or that want that exposure. Everybody wants the exposure to Bitcoin and that volatility and that highs and lows and shorts and longs, but they don't actually want to buy Bitcoin.

No. Yeah.

At the end of the day, there's no trusted custody that they would actually. There's no bank. There's no bank. Obviously Kraken has made some serious moves at the moment to be one of the first crypto banks in the U.S. which is interesting, which we could maybe talk about. But I see a lot of moves in that regards is, you know these, these new crypto custodial banks we'll see but it's still not US bank or bank of America or jp. You know, let's get JP to provide the swap for, for you know, Bitcoin and I think we'll all be sitting very pretty here, I guess.

I guess that's a really important point, right, for the wider adoption this trust element and the trust element comes with for example banks stepping into the space and really provide this trust element to the wider market.

This is not like a bank freak. This is not a feed or bank. This is a clearing bank. This is a real, actual bank with offices and retail and business and private. It's not some Cambodian bank or bank of Mongolia or bank of Taiwan. This is a real public bank that's going to be providing the support and services for this ecosystem. And that just hasn't come to play yet.

Well, I mean things are, things are moving still, right? I mean you may have seen moving.

For 12 years but I mean there.

Is obviously a lot of inertia in this field but. And there is a lot of, there are a lot of regulations so frictions. But you may have seen the last 12 months that multiple chairman banks have made a move and they've made more than announcements.

What does that make actually mean?

Making a move means generally starting with custody of cryptocurrencies, which is generally the first step into a long parable of additional value added services related to tokenization.

Or so bankstrike provides this at the moment. Why aren't they becoming like the bank of all crypto? Why haven't. I mean obviously there's something that's still preventing. A lot of banks are doing this, a lot of banks are doing their POCs or providing their, their products that could obviously benefit this space. But you know, it just doesn't. Like I said, there's a disconnect between what is innovative and what is actually practical.

I think you have, I think we all agree on your statement that today people are confused, but it's a building block approach. You know, as I mentioned earlier, a transformation. We're really reviewing the way of the type of financial services. So the reality is going to be hybrid type of period. And as you mentioned it started not yesterday but few years ago, but back, you know, just to illustrate back to 2015, I would say that everybody was trying to build its own kind of custody solution in house because they wanted to play around with the bitcoin or some kind of digital assets. I think that today you can really say that you have first trusted custodians, actors on the market. You mentioned Bank Freak as well as Komainu and other actors that are delivering regulated full custody services. They are not bank obviously, but that's part of the overall story. And then you have also, I would say and some around the table, true technology partners and actors that can after those many years really bring added value solutions to those actors that maybe the traditional ones are still figuring out. What should we, I mean basically large traditional actors are still trying to embrace that economy, but they have those constraints in terms of regulation. But if you look at what happened in Germany, in many countries and in Switzerland, obviously regulatory entities, they tend to really take seriously that opportunity. And thanks to very large entities in the US checking everybody to make those world moving faster and thinking about Facebook with the Libra association and I think it's moving, it maybe could go faster, it could go faster. But I think we have to build trust. I think we are all aligned on that. And building trust takes time, especially with a very highly value asset.

That's probably the reason why this is the thing. I mean the blockchain is a trust machine, is it not? So at the end of the day, why are we here to build trust when we can obviously utilize trust. And the interesting component here also is.

That.

The actual technology, ecosystem, technology as you all know, gentlemen and lady, is that it's moving too fast. Well, it's not too fast, it's moving very fast. Which is great for me and like minded entrepreneurs and technologists like yourselves, but it's terrible for regulators and terrible for, you know, I'd like to call them, you know, mature people, not old people. But you know, at the same time technology is moving so fast that you know, regulation is just not able to keep up. And what's going to happen is, I mean, you know, you have a list, I have a list here of all the ETFs, for example, that have been denied over the past few years, right? There's like 10 of them. What's going to happen is all these, all the constraints with regulation, as you've seen now with defi, all these constraints with regulation is going to start pushing the technology button a lot more and it's going to even further advance what we can actually achieve. And to be honest with you, the regulators, need to really get their act together and start leveraging and utilizing this wonderful technology that provides real time auditability, that provides irrevocable proofs of record and gives them a true environment to obviously be validators in that regards. At the end of the day, if they don't, what I'm saying is a lot of these institutional juggernauts, a lot of the institutional players, they're going to do their own DeFi ETF, they're going to do their own DEFI products. And we might not really understand that now, but you will understand that in two or three years when we start seeing a lot of these things, the smart contract can operate completely independently of itself, all actions. And once we start perfecting these smart contracts and making them fully deployable and fully functional with actual utility, especially when we see some interesting ETF products starting to come out, derivative plays on the defi ecosystem, why regulation? I mean, we can create our own governance model, is that right?

Yeah, but I think we're discussing multiple topics here. We're not debating that regulation has been a friction in the, in the innovation, in the implementation of such innovations in banking and the financial environment. I think that we should not mix that with the need and the opportunity to have trusted players offering custody services or key management services. We all part, I think in this call of a community which truly believes in the advantage of the cryptocurrency model where we can be our own banks, we have the option to opt out of the banking system we can hold under the mattress. But the truth is if you just look at how people want to behave, they want to delegate that trust. And I'm not speaking here about you and I, I'm speaking here about the normal people that don't have the infrastructure, don't have the knowledge, don't have the need or the willingness to do this by themselves. And so where are these people going to look? And you know, we can think that the world is going to be entirely disrupted, but the truth is it takes a long time for a world to be disrupted entirely. And there are big players on the markets which still have, are the main on ramps for the, for banking services. And really the future that we can see is that there will be collaboration with these new technologies and the banking sector. One is going to move very fast, is potentially going to be outside of a regulatory, well defined regulatory environment and one is going to be going to move much slower, but it's still going to be potentially the main ramp that most users use to invest in Cryptos and interact with digital asset services.

I think you're perfectly right, Adrian. I think we need also to look at what the market needs. And today we are talking about a small market cap. To be realistic, we're still far away from having a service that is touching the mass market. And I'm sure if you talk around all the people you know, and that's why at Ledger, actually we started our business with our private nano, which is become your private bank. As Adrian mentioned, it's a choice, but we also recognize the need of delivering the same level of technology to organizations because what Adrian said is important. You need to leave the choice to the customer and you need to make sure that you have all those services because people also want to rely on, I would say a full trusted custodian, regulated. And I think we need to respect that. So as a technology provider, I think our role is to deliver in our respective domain the highest level of technology with the highest level of trust, because this is what we do, as well as trying to address as many scenarios as the market will require and demand tomorrow. And maybe new scenarios are coming. But I think this is a key, very important role for us to stick to what we do. And for me, let's stay humble in the sense that we just address maybe one piece of that overall process and transformation that we are participating to.

The one thing we all missed here when you speak about trust and custody is the role of transparency in this. And Blockchain was designed as a trustless system because it's transparent. It's all out there in source code for everybody to review and verify. And as custodians, it's also important to us that we're transparent about the quality and security and guarantees that we achieve. And we through these to some extent, through following regulatory procedures where the regulator bring in some transparency over what we do and to a larger degree through independent and third party verification of what we do. When we have audit firms publicly confirm the quality of our services that we're able to achieve and then obviously longer term, some custodian may be able to open source aspects of how they do things. That's also an interesting aspect of how we operate and evolve custody.

Right. And on the regulation you just mentioned before, we discussed before that the market cap is still very, very, very small, to be honest. And in order to get institutional money and like pension funds which have a lot of money on assets under management, they need to have this trusted party and the regulatory security that they are investing in a secure environment. And as soon as that can be provided from our industry, I will assume that we will really go into the next phase.

So I think you all brought in interesting topics, in my opinion. I don't think it's all about regulations, which we know that they will always be slower than technology. Banks, especially the big ones, have to deal with regulation, legacy systems, and of course also reputation. I think it's important. And that's why, in my opinion, we talk about building trust. But anyway, it's not all about the blockchain itself, but also everything around it, for example, like user experience and security, for example. And that's why I would like to ask all of you what are the key characteristics and feature you're proud of in your respective solutions and what are also the evolution you foresee in the future of this market at Bitcoin?

Sweet custody for more than seven years. And as part of that, we're very proud that we support a very broad range of crypto assets because we know that the world doesn't stop at Bitcoin and ether support as many of the more traditional institutions do. But it's important to us that we not only serve institutions that are rooted in the real world and need to be mindful of regulatory concerns, but that we're here for the community and support defi projects, support token offerings that have a very broad range of blockchains that their assets run on and that want to participate also in not only financial transactions on the blockchain, but also in economic transactions such as staking or in governance actions such as voting in the blockchain.

Right here. Go ahead. Should I go?

Thank you, Peter.

So from the custom digi perspective, right. We are providing a SaaS platform to the regulated financial service industry. So trust and security is a really important topic and we are quite proud from our side that we have successfully done the EASA E3000 audit. Actually, Marcus knows that.

Right.

And that we passed that. And that's for me also one of the future developments I see for the market as it is getting more and more professional. We need to come and agree on certain standards, how we actually can ensure customers that all the security levels and the trust they are looking for are met.

I think one point which has been often neglected in the past with early custody technology solutions and which has led to some of the terrible events that we've seen in the last 10 years, including the empty Gox or Bitcoin central bank. Bitcoin24 sort of hacks or losses has been, has not always been related to the key management and you know, when we speak about custody, we often think about, you know, putting these crypto cryptographic keys in secure environment. So whether it's an HSM or a different kind of technology, but the weak point quite often is not the HSM or how we store these keys. It is actually at the boundary who is authorized to access this machine and to authorize the processing of a transaction. It's all about governance. Governance is something that banks and most financial institutions have known for a long time. It is pretty much the main job or the main focus of a bank is to have the appropriate governance around processes. And this is also something which is heavily regulated, but which we have not seen implemented professionally in such solutions for cryptocurrencies and digital assets in the past. And if there is something that I'm proud in, what we do at Metaco is we have been able to bring such frameworks for efficient and transparent governance around the management of digital assets straight from the traditional finance back to cryptocurrencies and digital assets, so that the distribution of trust, the removal of central point of failures, is as effective with digital assets as it is with traditional assets. Given that the risk obviously with cryptos is much more detrimental than it is with traditional assets, as when you lose something, it is definitive.

I think one of the reasons why Changely has been so successful over the past five years is for the sheer fact that we've designed everything to be so basic and simple and very retail friendly. And obviously we haven't done custody up until now. We've obviously recently launched our Spot Exchange, which is pro.Changely.com to connect our ecosystem closer together. Not here to compete with any custody providers or exchange providers, what have you. We just felt the need to obviously connect the dots, so to speak. So we're now entering this custodial landscape for the first time and it's been a very interesting foray for us over the past couple years of designing this interface. So as far as we see it though, user experience, I mean I've, I. My background's in consumer behavior. I've built countless amounts of products and businesses in crypto since 2012. And the one thing every time has been about user experience. You know, I remember when I was working with Halsey and originally dining designing bit reserves platform which is now uphold. It's all about the user. It's all about how you can connect and provide, provide something so basic but yet something so beautiful. And the more we get clear on that narrative, both from a retail perspective as well as institutional, the better off we're going to be, but we're still not there yet. It's still clunky, it's still buggy, it's still not plug and play. So the more we can refine that process and the more we can kind of connect user and product in a much more seamless way, the more we're going to obviously benefit from that.

I just wanted to comment on that, Eric. What we've seen on the market is that it's true that generally speaking, user experience is really the first concern and it's been very difficult to achieve good user experience with crypto products. At the same time, big and important point today for banks and for their clients is not to have a new beautiful crypto platform. It is that it is integrated and that it feels exactly the same way as other asset class like Swiss Franc, Euro dollars or equities feel when you connect to your E banking. So the main challenge today, if we want to see mass adoption with users which may not be familiar with crypto, its confirmation principle, like the uncertainty and finality, is not really to reinvent the wheel. Of course, there are a lot of other directions where we can push, in particular for retail products. But for institutional success, it has to be that such new technologies look and feel exactly the same, are deeply integrated into core banking systems. And this is something Metaco has invested a lot of effort in and we think this is the future for institutional adoption.

So when will Bitcoin be added to the global list of currencies for xpt?

It's pretty much already, to be honest, with multiple banks, it is already part of their core banking. We, we at Metaco have complete integration with Avalok and multiple banks now running with Bitcoin side by side with Swiss Franc or Euro. And we know that Finova has such integrations. Also we have other alternative integrations. So I'm not saying this is fast, I'm not saying this is finalized and that Bitcoin already feels and looks the same as other assets. But I'm saying this is a direction we must take and I think all of the companies in this discussion should take this seriously.

That's a very good point from you, Adrian. Right. Also, as we discussed before, adaptation and the speed of the regulator, if we want to change big organization, big banks, we have to provide a smooth and easy integration into their existing A processes and B, also their system. Meaning also from an integration point of view, it's nice that we have all this fancy new technology, but most of the time what they really need is a proven and solid data formats like Swift or Fix which they can handle. And if you are able to provide such formats then adaption into the system of those big corporations will be much faster than with new technology. And actually that's one of our learnings this year and our focus as well that we not only provide the latest technology but also already proven and widely adapted adapted integration capabilities.

Yeah, let me share maybe if I may to respond to the original question you ask what we are proud of. I would say let's. I would prefer to share what are maybe the four key things that our customers like about Ledger Because I think it's more important for me to be customer focused on that. The first one is very basic one. That's the financial argument. You know, more yield generation features will be developed in the future as you know, staking lending, etc. And it will require your funds to be kept online. And Ledger is offering today an online self storage thanks to the HSM in the back door but as well as the overall architecture and secure. And I think this is also a key challenge to be transparent with you because if you think about the traditional financial the way you do calls frozen storage, whatever I think we need bringing those new assets. You need to really embrace the new innovation and technology that blockchain is bringing on the table. And that's why we were born on the blockchain and we have true customers today that we operate with a significant amount of assets to secure. So we really embrace that new innovation and we also recognize that traditional financial environments we need either to embrace that new technology or maybe we also try to respond to their requirements. But until they are unclear it's still a challenge. But basically you don't need today to pay a huge infrastructure to maintain such a service. And more and more digital assets I would say will thrive. And today we have a team of 160 engineers we're going to grow +100 tomorrow in a sense next year. Just dedicated to maintain the solution and added new coins as I've heard. Yeah, definitely you need to support as many coins as you can today. More than thousands of coins if you include the ERC 20. And I think that's a broad offering that you need to deliver. That's what your customer deserves when we are technology providers. So financial benefits. Second thing that is important for our customers that the infrastructure is definitely the ones who started to build their own infrastructure. They know how much it costs to build that. And as well as Eric mentioned earlier, it's moving fast. So it's just not a matter of building things you need to maintain. So that means the new protocol Yesterday I was talking about the new protocols. How many updates do you need to follow bitcoin next year? I believe we have a major update but I'm talking about the new staking ones etc. And when you talk to them it's always a maintenance cost. So on premise solution may be sometimes a good idea but that's why Also we deliver SaaS solution just also to deliver fastest go to market solution for our customers and we operate all the nodes as we also understand that you require expertise and find the talents to build that infrastructure and that's what we want to do and help our customers and partners to deliver that. The third thing that customers lag very much with ledger is compliance. We talk about that the SOC 2 certification was an important milestone for us. But we also I've heard about the audit for sure transparency is key. Markus mentioned that and that's part of the job to deliver as well the infrastructure that will help our customers to meet their big four audit yearly process as well as meet the local regulatory entities. Not only in Switzerland, in Germany as well in France, in Luxembourg, in Singapore, in Tokyo, I can mention every single country they will have some constraints. So let's be flexible for that. Last but not least, definitely it's scalability or you could include adoption inside that I hear the debate about user friendly or whatever. For me what I call that's adoption because if you do not have a full user adoption we talk ux. I've seen many articles on that. So adoption is delivering the right level of service as well as having the right interface. But definitely the governance are key. Securing assets is also a matter of who can do what and when. Including your customers. We have custodian as customers and they can offer to their and customer the ability to be part of the overall validation process which is key because you want that flexibility as well. You have also the possibility to segregate your funds very critical for most of the custody and tomorrow and obviously I've heard many times integration, yes definitely you must be part of your customer framework ability to interact with another backend core banking system. But you need to create that stickiness for a seamless workflow as well as stay as a tech provider. Really flexible enough tomorrow shift from A to B. KYC is a good example. You have many tools but again it's a matter of choice and our strategy is really to deliver something open enough so customers at the end they select the integration framework they want to to deliver.

Sorry, if I may, we are a lot of people so we touched a lot of points. I would like to bring a bit more order maybe. I think Adrian and also Alexander mentioned a key topic in my opinion. How can you trust your employees and operators building and operating your custody solution in this regard I think of course it's important to mention audits, certificates and everything. What kind of control do you have in place there?

So at Medaco we have, you know I mentioned in my previous comments that operating such a platform requires the appropriate governance, but this comment also applies to building such a solution. You need the appropriate governance and I'm sure we all have similar approaches here. But what we do at Medaco is every commit every new piece of code that is added to the system for the critical components which are isolated. That's the boundary of the system are carefully reviewed by multiple engineers in the company, including senior staff and they are then all systematically reviewed by a third party auditor at the time of deployment, in production and at the time of major version release. Now that's not enough in our opinion and we go one step further. We have historically been very open minded about the idea of even opening the source codes of our critical components to our clients, which we know is not perfect because clients don't always have the ability to parse and understand exactly what they're seeing. But it gives a level of comfort both to the client and us and it shows that the work has been done properly. We have lately even gone one step further and I think this is something that every company providing custody services should look at. It is to be able to guarantee and provide a proof that the code that we deploy and it's particularly relevant for our SaaS offering the code that we deploy in production for our clients is exactly the codes that has been audited and that there is no way Metaco has added a backdoor or has made last minute modifications. What has been audited, what has been validated by the different personnel involved in the company is exactly the version that was deployed in production as an executable for that. There are multiple methodologies, but Metacode uses what is called a secure build process where we can demonstrate after builds that what has been built and deployed is what is the source code that was audited. And we think this is part of this objective of transparency where it's not about just trusting a company like Medeco. We have a good reputation, we have strong tier one clients over Asia, over Europe, in Spain, in Germany, in Switzerland. We have clients now starting in the US we have therefore we have trust, we have good clients showing that they believe in what we do and that they've been able to operate with large amount of aum. But this is not sufficient. Nothing prevents Medaco as a company potentially to corrupt our process and corrupt what is deployed in production. And we want to make sure we isolate ourselves from such a risk.

I mean it's very simple. Don't trust, verify. And we embed that at the core principles of what we do. Bitcoin Swiss There is no single step where a person could abuse the privileges or the access or what they see. Well, they will never see enough information to give them access to transactions or private key material. That's just built into the core way that we operate.

Yes, I guess because digitally are going in a similar direction. Right. There's the technology itself which is an important factor, but also the governance and the process layer and how you split the organization. So at the beginning of designing cluster digit, we have spent a lot of time in designing how the operating model would look like in order to avoid a single point of attack or a single point of failure. So for example we implemented that with a holistic security framework and part of that is for example Chinese Walls. Right. Who is developing of course has a four eyes principle but is then at no mean having access to a production environment. And the people who are operating the SaaS environment, they don't have enough knowledge and access to actually do something harmful. So there it's a split organization where you increase the complexity of course, but on the other hand you are avoiding a single point of attack or failure. It's just a couple of the security measures we have implemented.

Okay, so I mean another, another important topic I think also because the timing is already running out. So we have so many different solutions out there like custodial versus not custodial, consumer, consumer versus enterprise solutions on premise SaaS. I'm interested to know from you especially how the disaster recovery system looks like. For example, if one of your vault or HSM or whatever is lost forever. Or maybe also your client's ideal solution if in case of on premises or something.

I think that's the whole issue, isn't it? I mean the reason why I wake up and accept 5% every day is because I trust Barclays, because I can literally if something goes wrong, if I lose my wallet or if somebody tries to steal my money, I can speak to an actual person, I'll buy it. They might be in India or Pakistan. I was just on the bank for four hours yesterday. It was beautiful. But I can call them and like fuck their brain. You know, I can, I can, I could do whatever I want as a customer and I know that they're gonna sort it out. I know that every time I use my card I have to pay a fee. I don't care. It's easy for me. And that's kind of where we have to go. We have to get to, you know.

Holy.

We can hear you, Eric.

Yeah.

Oh, there we go. Okay, cool. That's where we have to kind of get to in order to like really enable this mass adoption curve. You know, it's like there's no point even like, oh, when is this mass adoption gonna take place? When is this gonna happen really? At the end of the day it's, it's, it's, it's about like, okay, well when is the actual technology going to be in a place where users will be able to open a bitcoin wallet or open a crypto account and not have to worry about anything? We're a non custodial exchange, or at least we have been for five years. And at the end of the day, what can they do in order just to open an account not to worry about anything. Let's get to that stage and then we can obviously enable this mass adoption curve to take place.

If I may, at ledger, disaster recovery or recovery is a key topic as you can imagine. So we've been through all different scenarios from a consumer perspective because we have also a group in charge of the consumer market, but on the enterprise side as well. The key point is for us customers, our customer leveraging the solution. They are completely autonomous and basically we have a full recovery disaster process that most of the customers, what they're going to do is actually run that kind of dry run when they set up and basically we could just disappear. Customers, they have in their hands, either individuals or enterprises, they have in their hands in a full control of doing a full end to end recovery to get back their funds on today, whatever, let's say wallet you would like to get as a target and we are even working today to enable our disaster recovery for the enterprise using our Nano's consumer product. But I think this is a critical point today and we were talking about trust and part of trust is really to demonstrate when you buy the demonstration that people, they are in full control and that's critical. And we were talking about regulation. That's also part of the actors where they need to understand that when you are managing funds on behalf of Others, you have to be in full control of that. And that's really part of the full DNA of Ledger.

Changely loves Ledger. Alex. We love it, love the product.

We love all crypto actors. There's no segregation in our world. Because, you know, as I mentioned, we're such a niche market today, let's be honest, we are all together trying to build something big. And I truly believe also that competition is very positive for our markets because, you know, I've been working in the IT industry for many, many years and it's very important to have that balance because competition means also that you have more brains thinking about what we can do to address those services. And I think that's what we try to achieve all together.

Exactly right.

You asked about business continuity management. If I recall the question correctly, I would say it's solvable and actually it's already solved, but it comes with a price. We have to keep that in mind. Right? Especially if we are comparing the different marketing offerings from an end customer point of view. We always have to keep in mind that this security and availability and then is coming with a price. Just to give you a quick idea how we solved it. So we do have different clusters of HSM solution. Actually it's Adrian with Metaco, underneath which we have distributed over different tier 4 data centers with all the security in place. And what's also important, even for the worst case, if you take the scenario that even a couple of data centers will blow up, you need to have in place a clear and robust and secure recovery process. What I'm saying is pretty much with all the methodology and the technology nowadays in place, it's solvable, but you have to spend quite some time in engineering and it comes with some costs, but it's doable and we have done it.

And it may be solved for custodial exchanges such as ours, but I care about the user as well and for them to be able to be their own bank. And there the problem is not really solved. I mean, we all have instructions to them, write down the seed, store it on paper, don't store it in the same place. But it relies on them to get so many things right that they don't immediately understand why it's important and what's important of it. That at the end many crypto assets are lost and will be lost in the future because users don't get things right when we trust them to be their own bank. And I'm working here and many of us are working here to improve that experience. But it's A difficult problem that is not changed just by better technology, that we're going to work on that as a crypto development and gig community to improve the experience of being our own bank.

If I can add maybe a couple of. I mean, my little opinion regarding that, I think it's in a consumer, it's pretty easy, we just need to educate people. I think in my opinion it's enterprise solutions that are much more problematic on that side because, you know, as we said, it's about governance and everything. Anyway, I think that we need to. There's another topic that I really want to bring in because I think it's one of the hottest topic at the moment and the time flies so it's already running out and it's staking defi and wrapped coins. So we see that staking as well as getting rewards from locked funds, wrapped coins, providing liquidity in defi protocols, for example, is also, as I said, one of the hottest topics. Of course there are more or less substantial differences between protocols and implementation. But generally speaking, which role do you think custody plays there? How are you dealing with it? So if you are already dealing with it.

Well, custody is the heart of the core banking system for the decentralized finance. And it's the custody or the storage of private keys that we're speaking about. You mentioned staking, voting, lending, these kind of operations that happen when and all of them require that a transaction or inaction is signed by the private key. We need to be able to enable that in all our custody solutions. Otherwise as an economy we cannot proceed, we cannot make progress. And that's been at the core of my responsibility here as I came in earlier this year, to enable Bitcoin's ways to continue to participate in that decentralized financial ecosystem. We've been the first to enable staking in our enterprise custody because we know it's important to our client that not only they can huddle their assets very long term in our high security vault, but they can also participate in other financial transactions. They can do yield farming or they can participate in governance on their blockchains. And I know that all of us are working on that because it's important to our client that from the security of our vaults where we manage the private keys for our clients, they're able to participate in all the financial transactions that are moving into blockchains.

I mean, I think the last five years in institutional custody have been mainly driven by the needs to store things. And Marcus really jumping on what you said, the objective was really to manage keys in a secure way and potentially never use them. If you think about cold storage, this is exactly what it is. You generate keys in a secure way, you put them on a piece of paper, on a piece of metal, and you put that in a vault and you assume they're secure and you never touch them. And you can move assets in, but it's very hard to move assets out. And what we see recently, which comes with the success of cryptocurrencies, on one side, you need to have more payments. Payments are the frequency and the throughput of payments is increasing. But also with DeFi, particularly with the use cases that Markus mentioned, it has become now a main requirement not just to store, but to interact with the chain. And interaction is antithetic to the idea of storing because you have this trade off that on one side you can store with very high security, but then your assets are on agile because you can't access the keys. On the other side, you want to be able to be highly agile and interactive, but then potentially you expose your keys in the process. And so I don't want to get too much into the details, given that we are getting close to the end, but there are now many new techniques to still maintain a highly secure custody service that is interactive. And for that you can use a multitude of techniques, whether it's having controls about the throughput or controllers of other kinds of actions that you're authorizing in the system, backed by hardware or backed by multiparty computation. So all of these processes, they are becoming more and more relevant. And we can now see companies like Bitcoin, Suisse, but obviously many other banks on the markets and exchanges having this need that have found appropriate solutions for this.

Do you want to also spend a couple of words on how key ceremonies are conducted on your site? So basically how the keys are generated in case of of course, custodial solutions.

So I don't want to monopolize the discussion, but I mean, on medical side, we have a particular way of approaching key management. We do not think that we should tell our customers whether they should use a particular brand of HSM or a particular hardware versus MPC or a different way of managing keys. We think that Metaco as an infrastructure provider should provide the flexibility to our clients to decide if they're more comfortable with a Gemalto, with an IBM with MPC multiparty computation. And therefore we provide best practices, but we leave it to our clients to then decide what is most appropriate. So what does it mean in terms of key ceremony? Well, I'M going to take a particular example of typical hsm. The way it works is that you generate first what is called a master key. And this master key is generated within the HSM most of the time and then exported in multiple fragments. So it's split in multiple fragments which are exported onto multiple smart cards, or at least data stores, which are secure enough that you're comfortable then storing them independently. That creates decentralization. So breaking this key means breaking multiple smart cards or multiple environments and also creates resilience, because losing one of these fragments doesn't mean you cannot recover the key. You can potentially only recover it with a subsets of these smart cards. And then how we work with the keys of Merkel is that we heavily rely on a principle called hierarchical key derivation, where rather than generating new random keys every time within a new address or a new wallet, we derive these keys from a master seed. And therefore if you're able to backup this seed, even if you lose access to the data center, even if you lose access to the HSM or your system is compromised, you can always regenerate entirely the complete hierarchy of wallets just based on the backup you have on the smart cards. So I think this is an extremely resilient way of dealing with keys, which has been proven over the years, but is more recent in the case of digital assets.

We actually have a publication out from the Crypto Value Association Cybersecurity Working Group that I co chaired together with JP Olanson that was released three, four months ago and I'm sure that Michele will be happy to send out the link to that publication. It's a note of best practices related to tea ceremonies as part of the material that we'll send out afterwards.

Maybe in addition to that. Right. We have as explained the process from Adrian. We have actually done it with ourselves platform. Maybe just a couple of insights there.

Sorry to interrupt, Peter, I just, I have to go, so thank you so much for the time today. And anybody wants to check out, check out our services, Changely.com or Pro.Changely.com and thanks for the time everyone.

Thanks Eric.

Thanks Eric.

Thank you.

Just to finish from my side, right. It's quite a painful process, to be honest. It's quite unique. Quite some engineering into the process itself. And it's also quite tricky from a governance point of view. That's what we have discussed before. You really have to put in the right governance that you don't have a single point of attack or failure. But the point I would also like to mention out is the recovery process. It's not only the master key ceremony, but when you actually need it that you are thinking about that case before.

Yeah, at Ledger. That's very interesting, Kissimmereni. I mean all that process is at the heart of the product that we decided to deliver for the enterprises. But that starts with whole segregation. First it's important to understand that we separate who owns the master seed, the administrators who control the platform governance and the operators. We initiate and validate transactions. So segregation of rules is part of the overall model. Basically you do not have a single point of failure, which is very important because an organization is a group of people. So you have to take that into consideration. Then the secure key ceremony we use for those who know Ledger, we have that unique expertise in terms of hardware, both hardware that we build and as well as software. And basically we use the individual personal security device, we call that the PSD to generate the personal key on the HSM. And basically the PSD will identify each rights they have on the platform and using a secure the communication channel to establish between the HSM and the psd. Allowing every single actor to have a secure way to share the master seed in three PCs basically. And then I don't want to go in deep details for me that's not the objective of that call and because we would be more than pleased again to have a further discussion as my colleagues same as Eric Ledger.com, but we are known actors around the table. But I think it's important to my understanding that what Marcus, you mentioned, I think we are quite aligned because that paper you mentioned, I know we've been contacted and as well as I know that other actors participated on that. And I think we all deserve to deliver the highest level of security when it comes to security and key ceremony.

Okay.

I would even say it's so complex and you have to build so robust processes. Right. That's really an argument for SaaS services that it done once and in a way that it's institutional grade so that you really can spend the money which is required to do it in that way.

Okay, thanks everyone. I think we are close to the end. So is there anything else you want to add any of you?

Yeah, just from Ledger perspective. First, I'd like to thank all of you and thank you for the invitation. I'm glad that I could be in such active discussion with Adrian, Marcus, Eric and Peter. I think it's a great opportunity for us to and again for not being competitors but really bringing together some great ideas to convince that market that you have true partner that you can rely on to build the future of the custody. Because digital assets are growing fast. And I think this is a role that we take seriously to provide the highest level of technology to those actors. And I truly believe that that's just the beginning of a long journey. And I think it's time the conclusion for me it's time for people to think about buying instead of building. And I know that it's part of the transformation, the change management. And I know that the crypto world is a new world in the sense that people didn't have any solution. But today you have true actors you can rely on with hundreds of people expertise that can help you on that specific topic. And we are not addressing all scenarios as we all agree on. We try to interact with other products but but it's really time for large actors to think about buying instead of building and rely on actors such as ledger. Thank you again.

It's actually time for users to use instead of just hold right by participating in the decentralized economy as letting your money or your crypto assets work for you in defi, in staking and obviously also participate in the governance of the decentralized ecosystem by voting on self governing systems. And that's what we enable from our custody solutions. And also mimicking something you said earlier Alex, it's very important that we are all here as a community in a very small part of the economy and of humanity. We're all here with the aim to increase the security of users assets. And I'm convinced that in the next five years there's going to be an explosion of value that's going to behold in our custody solutions. And it's important that we stick together to increase the overall security and standards that we have in how we manage crypto assets.

That's quite a good point I would like to add on. Right. I would love to discuss more about the business opportunity MIT financial services players instead of discussing all the technology details of custody, as Alex mentioned before, really the tech is solved. Use it and start thinking about the business opportunity instead of all the technology details.

In order to reach adoption we need three requirements. We need demand, we need regulatory approval and we need infrastructure. I think for the first time since the creation of cryptocurrencies we have gathered in many countries these three pillars. We have the regulators which are aligned and actually to some degree promoting the deployment of cryptocurrencies and digital assets. We have infrastructure which has been proven and I think the companies in this call have been successful in demonstrating that and demand is now kicking in. We see the price of cryptocurrencies going up, major banks on the market getting in cryptocurrencies and digital assets because they get demand from their clients, not just because they want to invest in a fancy innovation project. So the triple R's are here and I think 2021 is going to be a very important year for many banks which if they do not start getting involved to some degree, may see new clients or existing clients moving away from their banks and go to innovative services like Revolut or some of the custodians or crypto providers, some of which are in this call today.

Thanks everyone. Okay, so I think we can close now. So thanks everyone for being here. Was a really good discussion in my opinion. And also thanks for all the audience, all the people connected it and I wish all of you a great week, hopefully to be in person next time.

Thank you for the invitation. Bye everybody.

Thanks.

Thank you all. Good evening. Bye bye.

Bye bye.