FTX and Crypto Bubbles: Will Self-Regulation Be the Savior?

FTX and Crypto Bubbles: Will Self-Regulation Be the Savior?

In the aftermath of the FTX crash, the crypto market experienced significant shifts, with developments like the Ripple v.s. SEC lawsuits and BlackRock’s Bitcoin bonds injecting energy and optimism into the community. Despite the distance from that troubling period in 2022, the panel discussion on FTX, regulations, and self-regulation remains insightful.

Led by Sebastian Becciu from Sygnum Bank, the panel includes experts like Robert Le from Pitchbook, Kevin Murcko of Coinmetro, James Ryan from GammaX, and Michael Jackson from Fabric Ventures. As the crypto industry rebuilds trust and aligns with regulations worldwide, it paves the way for institutional players to enter the space.

Could the FTX Collapse Have Been Prevented With More Regulations?

The FTX collapse sparked a debate on the role of regulations in preventing such incidents. Michael attributes the FTX bubble to FOMO and the abundance of free cash during the Covid-19 pandemic.

On the other hand, Robert emphasizes the cyclical nature of financial markets and argues that the lack of regulations allowed FTX’s founder to present the exchange as legitimate while evading legal oversight. 

While Michael and Kevin believe that regulations may have lessened the damage, they acknowledged that bad actors will persist in any industry, making complete prevention challenging. Michael points out that the crash might have been caused more by internal governance and management issues within the company rather than a regulatory failure. He thinks that maybe with proper regulations, the damage of the FTX crash would have been lessened, but it wouldn’t have been stopped.

“Regulations move slower than innovation, everybody knows that saying, right? At the same time, if you’ve ever run a business, you’ll know that criminals outpace whatever you do to stop them. At the end of the day, you can try, you can lessen, but you’re not going to stop it.”
– Kevin Murcko, Founder & CEO of Coinmetro

What Are the Impact of Regulations?

James thinks that it’s inevitable that companies are going off-shore. If customers are demanding less friction, companies will move to countries where they can set up an exchange with less friction, which is basically going off-shore. 

Robert responds to this by saying that in the U.S. a lot of the federal regulators are taking steps to cut off crypto from the banking system, and he believes this is going to push crypto companies off-shore.

Kevin agrees with them, stating that the current cycle of regulation hasn’t worked to prevent fraud and has failed to establish a better ecosystem. Apart from pushing companies off-shore, there might also be potential regulatory risks that come along. He states that regulations often leave the biggest companies in the world to do whatever they want while smaller entities have to follow rules, making them less competitive.

Michael complements this conversation by looking at the finance and VC perspective. He thinks nowadays VCs won’t permit their money to be invested in companies that are in shady jurisdictions, but only in reputable companies that don’t focus merely on arbitrage. He believes that this, rather than regulations, will be what brings companies on-shore.

More EBC insights on crypto regulations:

The conference room is full of the audience listening to the FTX panel at EBC23.

What Are Your Take on Self-regulation?

Robert foresees a combination of regulations and self-regulatory organizations (SROs) in the industry while Michael also thinks that the regulations will be framework regulations. 

On the other hand, Kevin emphasizes the importance of self-regulation. He thinks a self-regulating system is like having a person in your neighborhood that is always complaining about everything, but after the complaint, the annoying things just stop happening, benefiting the whole community. 

Similarly, he points out that it was Twitter that first disclosed the scandal of FTX. Kevin thinks that what differentiates SROs from regulators is that SROs are formed by insiders, which can also be corrupt, for sure, but they can be more powerful as well.

How Do We Get Rid of Bad Actors in the Industry?

Michael states that enforcement needs to be stronger against scammers in crypto, who often hide their identity. Self-sovereign identity systems are being developed to link real-world identities to online activities and prevent scamming by illuminating the shadows. Meanwhile, the development of insurance policies in DeFi may also improve the problem.

Kevin argues that bad actors exist in all industries, there will always be people that outsmart the system, and it’s impossible for us to ever get rid of them. In crypto, scammers exist, but they represent a small percentage of transaction volume. The problem is the media focuses on sensational numbers without comparing them to other industries. The solution is to establish norms and standards as the industry grows

Watch the full panel to learn about the expert’s opinions on the FTX crash and self-regulation!

Custody, Wallets & Exchanges: Keeping Your Crypto Safe

Custody, Wallets & Exchanges Keeping Your Crypto Safe

A very enlightening discussion took place during the 8th European Blockchain Convention with Maria Apogeni, CEO of BITMarkets, Serra Wei, Founder & CEO of Aegis Custody, and Clarisse Hagège, Founder & CEO of DFNS to discuss wallets, exchanges, and custody.

Not Your Keys, Not Your Crypto

Clarisse believes that owning your private keys is important for crypto ownership, but contrary to what people think, she argues that physical ownership is not necessary to keep assets secure.

In her opinion, key management is difficult and can easily lead to loss of funds, not to mention that many users still record their private keys on cloud service after purchasing a hardware device. With the advancement of technology, Clarisse envisions decentralized custody with a focus on recoverable proof of user signing power.

The audience listening to the panel discussing custody and wallets at EBC23.

Segregation of Funds Is Important

Serra points out that qualified custodians in the United States now have to demonstrate that they hold private keys to customer funds while proving customers’ funds are segregated. Clarisse thinks that centralized exchanges were a response to the difficulty of interacting with blockchain technology, but technological advancements, such as multi-party computation (MPC), can help rebuild trust and increase security. She suggests that segregated wallet infrastructure is crucial to guarantee the safety of user funds in case of bankruptcy.

The panelists discuss the importance of custody, wallets, and exchanges at EBC23.

The Future of the Crypto Space

Serra thinks that the collapse of FTX highlights the need for better risk management and infrastructure in the crypto space. Companies are now focusing on differentiating themselves by providing institutional-level solutions and complying with regulations. In the long run, this will set a new standard for sustainability and growth in the industry.

Clarisse expresses optimism in the future of the crypto space despite the fact that the institutional U.S. market is currently facing regulatory uncertainty. She believes that decentralized finance (DeFi) will come up with new solutions to deal with the situation.

More EBC insights on crypto, regulations, and privacy:

Watch the full panel to learn how to keep your crypto wallet safe!

From Trust to Adoption: Building the Infrastructure for Institutions

Building Infrastructure for Institutional Crypto Adoption

BlackRock’s Bitcoin ETF launch and the participation of Charles Schwab, Fidelity, and Citadel Securities in EDX Markets have sparked investor interest. Enhancing institutional adoption and establishing trust require discussing infrastructure improvements for traditional finance players entering the crypto market.

This essential panel is moderated by Madeleine Boys, Head of Community at GBBC, who leads the discussion with Vincent Dulhoste, CTO of Kaiko, Glib Udovychenko, Founder and CEO of Whitepay, David Engel, Head of Business Development at StarkWare, and Rajiv Sainani, Head of European Business Development at MakerDAO.

Key Infrastructure Components To Scale the Institutional Adoption of Crypto

David emphasizes the need for regulatory clarity and the necessary technical infrastructure, including wallets, protocols, and liquidity. Rajiv echoes David, highlighting the importance of bridging the gap between on-chain and off-chain and improving the efficiency on and off-ramps.

In order to create a seamless off-chain experience, Vincent emphasizes the importance of interoperability and composability in DeFi to provide a better experience for institutional adoption.

Personal Experiences of Interacting With Institutions

Glib shares that during the war in Ukraine, Whitepay implemented crypto processing for President Zelenskyy’s website to collect over 12 million in crypto for funding. This experience led the team to work on similar crypto projects with other EU governments and develop projects related to state services that can be paid for with crypto. His experience demonstrates that governmental institutions can benefit from private companies integrating services to help with urgent needs. 

From MakerDAO’s experience, Rajiv highlights three waves of institutional use cases for real-world assets in DeFi. The first wave involved working with young innovative companies. The second wave saw regulated financial entities, such as the U.S Commercial Bank, experimenting with DeF. The third wave involved deploying capital from on-chain protocols into the off-chain world. Rajiv also notes the importance of legal frameworks, the need to build more products natively on-chain, and the challenges of bridging traditional finance (TradFi) and DeFi.

Representing Starkware, David shares their experience with Visa. Visa built a proof of concept using account abstraction on StarkNet to turn a dumb wallet into a smart wallet, allowing for recurring payments. The innovation in wallet infrastructure and building web 2.0-like wallets is important for onboarding users and giving enterprises the tools to deliver better user experiences.

Vincent shares Kaiko’s experience with financial institutions on both the buy and sell sides. The company provides benchmarks and prices for investable products, supporting the investment life cycle, tokenizing real assets, and working with regulators to provide reliable data for market surveillance.

The panelists discussed how to build infrastructure for institutional crypto adoption at EBC23.

Challenges to Bridge TradFi with Web3 Infrastructure?

Rajiv identifies two main challenges: the lack of understanding of on-chain paradigms by large institutions, particularly in legal and compliance departments, and the trust issues in the industry due to the challenging conditions in 2022. As many institutions start to explore Web3, Rajiv thinks that conducting institutional finance on a public blockchain is probably one of the biggest barriers in terms of the effects of privacy and confidentiality.

David also points out two possible challenges for building blockchain solutions for institutional finance: the difficult business model due to smaller volumes and regulatory/legal challenges, and the challenge of creating a real business case for selling to institutional finance. 

He thinks that replacing existing institutional infrastructure with blockchain will be slow and selective because it’s really challenging to disrupt a robust and strong system. He believes that it’s important for the industry to identify specific areas where blockchain can make a difference, such as B2B payments.

Vincent thinks education is essential to mitigate institutions’ concerns to move into Web3. He thinks it’s critical to let them understand that it’s possible to deliver secure services on blockchain. The reliability, security, and scalability of blockchain technology should be educated to build trust.

More EBC insight on institutional crypto adoption:

Watch the full panel to learn how institutions embrace crypto through infrastructure innovation!

The Rise of Digital Assets: Benefits, Challenges, and How to Become a Winner

Issuing Digital Assets and Revolutionizing Financial Markets

The panel about the opportunities and challenges of issuing digital assets for financial markets is moderated by Bernard Nicolay, Adjunct Professor of Finance at the Solvay Brussels School of Economics & Management. Panelists include Thomas Jeulin, Head of Sales at Flowdesk, Victor Busson, CMO at Taurus, Kasper Luyckx, Head of Product at the Crypto Finance Group, and Viktor Banh, Digital Assets Markets at DekaBank.

Benefits and Challenges of Digital Assets

There are three main types of digital assets: cryptocurrencies, tokenized assets, and digital currencies. Tokenized assets are digitized private assets, such as equity, debts, and real estate while CBDC and stablecoins are examples of digital currencies.

Tokenization can reduce costs and settlement time, increase liquidity, and provide access to different investors in the market. With DeFi, actors that didn’t have opportunities to engage in the traditional financial market, such as many small and medium-sized enterprises (SMEs), will be able to participate due to the reduction of the counterparty risks. 

<Read more: Tokenization – What Traditional Bankers Have to Say?>

Kasper explains that blockchain technology enables direct peer-to-peer transfer of assets without the need for intermediaries, which fundamentally disrupts the security space as it eliminates intermediaries that charge fees for simple handovers. And as the networks grow and more assets are represented on the networks, we will be able to reap an even more significant impact on capital markets. 

However, scalability, standardization, and interoperability need to be considered. Interoperability allows different networks to communicate with each other using shared protocols and standards, and it facilitates a more seamless and efficient system. On the other hand, a lack of standardization creates additional costs and complexities for banks and other institutions. Having different regulations in different countries makes it difficult to carry out new projects, and investigating local regulations is simply time-consuming and complicated.

The panel “Issuing Digital Assets & Revolutionizing Financial Markets” at the EBC23.

Factors to Be Considered When Building a Business Case

Profitability, scalability, and security are the important factors to consider for a business case. Victor states that, when building a business case, the first step is to choose a technological provider and make sure the tokenization is profitable. However, once the proof of concept is proven to be profitable, it’s crucial to analyze whether profitability and security can be maintained when the model scales up. 

“The bear market is the builders’ market!” Watch the EBC interview highlight with Lex Sokolin to learn why 2023 is a year for protocol development!

A lot of businesses will have to ‘unlearn’ things they’re doing today and learn new things… We will see a lot of disruption and some of these companies will have to rethink how they can stay relevant in the future.

Kasper Luyckx, Head of Product at the Crypto Finance Group

What Roles Will Banks Play in the Future Financial Market? 

Kasper thinks that as peer-to-peer transaction popularizes and transaction fees decrease, it will be unnecessary for a middleman to exist, and business models that rely on intermediaries will be significantly disrupted. Custodians, however, will still play an important role in the market because not everyone will be willing to maintain self-custody over their assets. The key for those centralized institutions is to open up their platforms and be willing to connect to the services and wallets that their clients want to use.

More EBC insights on traditional banks and cryptos:

Panelists discussed the future of financial markets at EBC.

The Needed Talents in the Market of Digital Assets

According to Thomas, the winners in the future financial market will be compliant firms that bridge the gap between traditional finance and crypto space, and firms that are agile, innovative, and strong in technology. 

Apart from learning how technology works, Kasper emphasizes the importance of gaining hands-on experience. Only through doing and experimenting can we gain a true understanding of how the technology operates, where it adds value, and how it can make a real impact. 

On the other hand, speaking from an individual perspective, Victor thinks that mastering the tech stack and possessing the ability to adapt to technical challenges are valued in the market. At Taurus, they are looking for talented developers that are positive, eager to learn, and agile in this fast-paced industry.

I’ve seen so many bankers who take expensive courses that teach DeFi while you can just get a wallet, connect to DeFi, and try it out yourself. I think it’s so important because you learn while you do. You interact with the technology and you see where it adds value and where it doesn’t.

Kasper Luyckx, Head of Product at the Crypto Finance Group
Watch the full panel to understand how digital assets are revolutionizing financial markets!

Is Crypto Still Attracting Institutional Money?

Is Crypto Still Attracting Institutional Money

This EBC panel about the institutional engagement was moderated by Sebastian Becciu, Senior Ops Specialist at Sygnum Bank. Panelists include Daniel Vegue, Partner and Chief Strategy Officer at Block AM, Maurice Mureau, CEO & Co-founder of HODL, and Lior Zaks, Legal Counsel at Stake Capital.

The conversation started with the panelists’ emphasis on the significant potential for institutional investment in crypto. They highlighted the need to attract institutional players to invest in digital assets and Web3 infrastructure. According to Sebastian, the inclusion of private debt, private equity, and private assets will increase the total market cap of the crypto market to a staggering $575 trillion!

Industry experts expressed optimism about the future of DeFi at the 8th European Blockchain Convention.

Regulatory Guidelines as a Bridge to Institutional Investment

The panelists acknowledged the importance of regulatory frameworks in facilitating institutional participation. They stressed the need for clear regulations to build trust and provide a bridge between traditional finance and the crypto industry. 

Daniel acknowledged the MiCA regulations as a positive development, positioning Europe as an advanced jurisdiction of regulatory frameworks. Lior encouraged people in Web3 to participate in conversations with regulators to shape future regulations.

More EBC insights on MiCA regulations and DeFi:

Key Factors for Institutional Engagement

Citing Consensys Insight Report, Sebastian identified the essential factors to attract institutional investors: custody, compliance, execution, monitoring, and reporting. Access to the crypto market needs improvement, but advancements in user-friendly technology are expected to address this issue. 

All panelists agreed that compliance with regulatory guidelines is a crucial aspect for institutions to enter the crypto space. The establishment of robust custody solutions will also be vital to instill confidence in institutional investors.

EBC panelists encouraged Web3 and crypto communities to engage in communication with regulators.

Convergence of DeFi and TradFi

Panelists expressed optimism about the convergence of DeFi and TradFi, believing that the distinction between the two will eventually dissolve. 

In Daniel’s opinion, Ethereum’s deflationary system and staking rewards that generate yields in a macroeconomic climate of inflation, for example, is a strong incentive for institutional investors to enter the crypto market.

Everything that’s now in traditional finance will be there in decentralized finance and improve. It’s not a question of “if” but a question of “when.” We’re going quicker than a lot of people think.

Maurice Mureau, CEO & Co-founder of HODL.
Watch this exciting EBC panel and learn why crypto is still attractive to institutions!