Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Dr. Luka Müller: MME – The Law Firm Behind the Rise of Switzerland’s CryptoValley

Episode Date: December 4, 2019

We were joined by Luka Mueller, who played a key role in establishing Switzerland as a cryptocurrency center and in laying the legal groundwork for the ICO boom. In 2014, his law firm MME worked with the Ethereum team to set up the Ethereum Foundation and run its public fundraiser. A model that was later copied by countless other projects and led MME to work with many other leading protocols like Cosmos and Tezos. We also discussed his new project Sygnum, a cryptocurrency-focused bank. Nearly every company that works in the cryptocurrency space has had problems with its banking partner. Legal uncertainty, lack of knowledge, or simple unwillingness to work with cryptocurrency companies has made this a frequent nightmare for companies in this emerging sector. With a presence in both Switzerland and Singapore, Sygnum aims to fill a piece of missing infrastructure in the crypto-ecosystem: a bank that is able to receive, hold and transfer protocol tokens while offering a secure fiat gateway to easily transfer from the old world of finance to the new.We also discussed Switzerland’s regulatory environment and why it is able to provide more regulatory clarity.Topics covered in this episode:What life was like for Luka before blockchainHow Luka met Vitalik and went on to set up the Ethereum Foundation and run their fundraiserWhat protocols his law firm, MME, helped launchThe lessons learned over the years, and how he would do it differentlyWhy Switzerland is a great jurisdiction for crypto projectsWhat Luka thinks of asset-backed tokensWhat is Sygum, and why did he decide to start a crypto bankWhat Luke believes will happen when the tech giants release their own currenciesThe difference between Sygnum and similar banksWhat Luka's fears are in the space, and what he is hopeful forEpisode links: MME Law FirmSygnum WebsiteInstitutional Custody: A Portal to the Digital Asset Economy (Sygnum Blog)How Tokenization is Closing the Gap Between Public and Private Markets (Sygnum Blog)Sygnum gets green light to operate in Singapore (SwissInfo)Switzerland’s first crypto bank reports “overwhelming” demand (Decrypt)Sygnum on TwitterSponsors: eToro: Automatically copy every trade of eToro's top crypto traders at the exact price in real-time - https://www.etoro.com/Cosmos: Compete to win 100,000 ATOM by building and running Cosmos Zones - https://cosmos.network/goz/This episode is hosted by Brian Fabian Crain & Friederike Ernst. Show notes and listening options: epicenter.tv/316

This is Epicenter, episode 316 with guest, Luca Mueller. Hi, welcome to Epicenter. My name is Sebastian Kutu. Today our guest is Luca Mueller. Luca is a founding partner at MME. Now, if MME doesn't sound particularly familiar, you're most definitely familiar with their work because they were a crucial player in several token sales, which took place starting in 2014, including the most notable one, the Ethereum token sale. So Luca tells the story of when a handful of techies and engineers walked into his office in 2014,

looking for counsel and guidance on how to raise money for Ethereum, but also how to set up the foundational governance structure, the legal structure that would become the Ethereum Foundation. Frederica and Brian did this interview, and having both been part of companies that have raised money through token sales, I thought they were very well placed and prepared to have this conversation with Luca. So they talked about a number of things, like why Switzerland was and in many ways still is a favorable jurisdiction for token sales, the Swiss Foundation model that so many projects and platforms

have adopted, the differences between Switzerland and the U.S. in terms of regulation and contrasting that with regulation in other European jurisdictions. And they also talked about Cignam, a new digital asset bank co-founded by Luca. I really enjoyed this interview because it takes us back to the early days of Ethereum, and there's a lot of great insights and lessons there, which are still very relevant today in the current regulatory context. Before we go to the interview, I'd like to tell you about our sponsors for today's episode, starting with a brand new sponsor that I'm really excited to have on the show, and that is Itoro.

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Etor does not guarantee returns or performance. Cryptocurrencies are highly volatile. Please be aware of the risk while training them. We're also brought to you by Cosmos. And I want to tell you about an important change that's coming to the Cosmos network very soon. On December 11th, the Cosmos Network is due to upgrade from Hub 2, to Hub 3. As you know, Cosmos Network has an internal governance system, and over the last few months, a number of proposals have passed and will be added in this new hard fork. So there's four

governance proposals that we'll be making into this heart fork. First is the community fund, which was approved and will allow governance to spend funds from the community pool. There's also a change to how deposits on vetoed proposals are burned. There's security updates. and also an increase in the max validator set size. They're going from 100 to 125 validators. So this is all very exciting, and it shows blockchain governance at work, and it's a great thing to see. So for more on that, and to stay informed with everything that's going on with Cosmos, go to cosmos.network, scroll to the bottom of the page, and sign up for the newsletter.

And while you're there, also go to cosmos.network slash GOZ to learn more about Game of Z, which is the adversarial test net challenge for the upcoming IBC protocol implementation. We'd like to thank Cosmos for those support of the podcast. And with that, here is Frederica and Brian's interview with Luca Mueller. So we're here today with Luca Mueller. Luca is the co-founder and a partner at MME. So MME is a law firm in Zuck. And maybe many people haven't heard of.

MME, but you certainly would have heard of some of the projects and some of the work that MME has done. They played a really crucial role when it comes to sort of ICOs and crowdfunding in crypto, doing work back then with the original work with the Ethereum Foundation on the Ethereum token sale and later with many, many other projects. So really, and then Luca's been since then involved in lots of different projects from, you know, starting a bank, which we're going to speak about to working on many different regulatory issues, to working with different startups. So thanks so much for joining us today, Luca.

Thank you. So maybe let's start at the beginning. What was life like, you know, once upon a time before all this blockchain stuff came along? Like, how did you spend your days? Oh, Brian, I had much more free time. I tell you, it was, I old at that time, I was working quite a lot. you know, lawyers always are busy, but the blockchain really changed my life, not only because it got me really hooked on, but also the amount, incredible amount of work and also from an intellectual point, not easy work, was asked from 2014 for me life-changing. You were involved in fintech even before blockchain, right? Yes, I did.

I was actually in the whole platform economy already since 1999. I worked for several startups at the West Coast of the U.S., Silicon Valley. We had also, and I was really had to laugh when I was looking back into my files. Already in 2001, we had a project to issue shares on a web interface, which did not work because at that time, you know, that was true. revolutionary. So I advised the whatever had a context to digital transaction and law, that was my topic. So at the beginning it was e-economy, then transfer of protected information or secure information via an web or internet infrastructure, payment services, banking services, and always

also with an eye and the speciality on an AML anti-money laundering. compliance. So that's actually why I actually served into the next wave blockchain. So how did that happen? I kind of imagine Vittalik and the rest of the Ethereum founders marching into your office and explaining what they were setting out to do. Can you tell us the story of how that happened? Yes, they can tell it. They walked in in February 2014 in my office and started to talk about decentralized concept blockchain, Bitcoin and like, and Bitcoin version 2.0. And I was sweating because normally I understood digital infrastructures, but I had no idea, really, no idea at that time what they were talking about. And interesting to say is that I think it was Charles Holtkinson.

He said, you know, Luca, I mean, I see that you have certain. know-how in the field, but you need to have a read-in. And he sent me a link of a very interesting publication, which was issued in 2013 in the US, describing the Bitcoin Protocol. And I was amazed about two things. First, that this paper was really good, really good, very easy to read, gave a very good explanation of the basics of a Bitcoin protocol. And secondly, you know, in the US, they were already writing such comprehensive papers, while Switzerland was at that time, you know, in a deep crypto sleep. Nobody was actually really dealing with it. So that was, I was amazed by it. It's kind of a mixed crowd, right? So basically it's Charles Rosen and Joe

and Wittalick and Gavin Wood. What did you make of them? So, I mean, it must have been funny view for the outside, having all of them sitting in your lawyer's office, right? I tell you, at that time, I did not really think that they were so, I mean, famous blockchain person sitting around in my meeting room. At the beginning, they were more like nerds type, all highly intelligent, all with their special character in their t-shirts, normally coming directly from a flight, from somewhere, you know, flying economy class, sweating, running into my office. Yes, it was a crowd of tech guys trying to explain me what they want to achieve. And for me, at the beginning, I had to read in to understand. And then Vittalick showed me his white paper.

I was completely lost. I did not understand a single word at the beginning. So I was forced to read in. And these guys, they helped me a lot. And I had really, for me, it was a chance that I could work with them to understand what would be an adequate structure to launch a decentralized open source public protocol, which at that time was not known, apart from the Bitcoin protocol to the world. How did they end up, for example, coming to you and coming to Switzerland? And the idea of creating a foundation, was that your idea or how did that idea first come up? Very good question. I'm asking myself, who really had the idea? And I think we all were working on a structure. First, we thought that it might be a typical AG or GMBH, but then it was particularly Vittalik, who was very strong on this point that he said a public protocol should not have an owner. And so we were searching to what kind of structure we could apply, a structure which is.

works like a smart contract. You know, it has a predefined structure, a predefined functionality. You can load such a functionality with assets and the assets will be used according to the predefined purpose. And so that was that was the way why we came up with a foundation structure which has no owner, which contrary to the US structure is a legal personality. very solid, an old structure and very difficult as a smart contract, very difficult to change. So we then, after about four months of consideration, we decided it might be the best way to set up a foundation as, let's say, as a governance structure element to launch and to maintain and to support such a protocol, not only for the initial launching process, but also for the whole operation of such a protocol.

I think having a foundation has tremendously benefited Ethereum as a project, and I understand why they would seek you out, given that they were going to do this in Switzerland, but how did they settle on Switzerland as a jurisdiction to set up this foundation in? As far as I remember, they already made a search on different jurisdictions. Switzerland was only one of them. What they particularly loved is first that Switzerland had a very solid legal framework, a longstanding DNA of decentralized way of living and creating laws and operating. So that's what they always mentioned. You know, we are actually in a country which has in their political DNA already decentralization. And yes, I think,

that was one of the reasons why they finally ended up in Switzerland. And so I guess at the time already, I mean, I remember a little bit back then that securities law was a concern. Is that also something that you investigated and looked? And how did you look at sort of this from international perspective and from the perspective of potential securities laws around the token sale? Of course we had to make an analysis, what is it really, what we are going to do, what kind of potential laws would apply. And, you know, as a Swiss law firm, we could only advise on Swiss law and that we were quite clear. So listen, I mean, we can advise on Swiss law, how it works on Swiss law, but, you know, we don't know how it is in other countries.

So if you have any activities or if you intend to, let's say, to market your product somewhere else, you have to be aware that there might be other laws which will be applicable. And for the team was, you know, specifically the US was a concern. I think only the US was a concern. And we were looking at for, we had advice in the US. And, you know, at that time, you can imagine there were 2014. It was also for the US lawyers very difficult to assess what we really have here. What is a protocol access?

How do you launch such a protocol? It was difficult to say to what extent really, and it still is. I mean, it's not solved yet. As we can see, five years later, it's not solved what it really is. Does do the US security legislation really apply? And when do they apply and when not? So yes, if you launch such a protocol because it's the national project, other jurisdictional aspects needs to be considered and can be relevant.

Yeah, and I'm curious, maybe you can go into a little bit because I guess after the Ethereum fundraiser, of course, it ended up being a big success and then Ethereum launched. I guess it was around two years later, maybe after the Ethereum fundraiser that it started sort of happening with the entire ICO craze that in the end ended up becoming massive. Tell us a little bit about your involvement there. Like, you know, what kind of, and you know, we worked together with us a little bit on Cosmos side, which you also did. So, yeah, share us a bit.

Like, how was that, what was it like from your perspective? What are some of the projects you're involved in? You know, how many did you work with? Yeah, you know, just the term ICO, you know, at the time when we launched Ethereum, nobody was talking about ICOs. And actually, I never liked this term ICO. Never, ever. This is a term, and I hardly ever use it, you know,

because it's also a misleading term. A ICO as such as a type does not exist. There are some common denominators you can say this could be, let's say something which you could say this is a common base of an ICO, but there's so many different types, so many different types of launching projects. And some of them, you know, looking back now, I would say they are clearly, yeah, securities, especially under the US law, but also on the Swiss law, but the really, really some of the really old and decentralized launches which we did were clearly not. And so back to your question, you know, we did, I myself, I did not very much of such launches.

I concentrated only on protocol or on application protocol launches. So I did not many. I would say five, six, but the big ones. And always, when I said, you know, I will participate in a launch. It was always a protocol launch. Always. Which other protocols did you launch? Cosmos, then it was Thesos, it was Ethereum.

I need to have the list in front of me. I'm getting old. Now, Cardano, we did not do the cardana. We just helped them at the end to set up their structure. So I assume you learned a lot in the last six years. So, I mean, obviously it's been almost six years since they marched into your office. If you had to do it again today, you know, like six years later, would you do anything differently? Good question.

I would probably do one thing a bit more differently or two things. I would still use the foundation structure, for me, still the most adequate structure for a decentralized open source launch of a protocol. I would not change that. What I would actually have a little bit more, let's say a better eye on is, as I said, two things. One is I would draft the internal governance rules a bit more details than we did in the beginning. So let's say version one foundation was very simple and also the internal governance structure was simple. Here I would invest more time.

I would invest more time and I would also propose to the teams, to the core teams, guys, let's spend a little bit more money. You know these young guys, you know, we don't have money for these technical things, you know, legal stuff, you know, we know what we do and things like this. But, you know, here they were all young guys, you know, And I would more fathering or grandfathering them to say, listen, guys, even if you're young and believe in your decentralized world, add a little bit more structure to your idea. One thing. Secondly, since you have a foundation structure, the appointment of the foundation council is very important.

So here I would suggest to the core team that they are very carefully choosing who sits on the board of such a foundation because this is paramount. So these were the two things. More structure, more governance structure and really be very careful in choosing who you appoint as a board member in your foundation. Yeah, and I guess that probably both sound very pertinent, especially to the whole TASOS episode, right, where it seems like they were basically in some sort of deadlock for, I don't know, six months, nine months, or maybe it was longer, and could basically,

or were paralyzed, no, since there was this fight going on between the president of the board and then the TASO's founders. Yeah, absolutely. But do you still think, like today, let's say some, the next Ethereum comes along, you know, similar ambitions. You would again advise them to use a foundation structure. What are the biggest differences in terms of how one would today go about launching sort of a project with those ambitions?

If you intend to launch a protocol as Ethereum, the same way you want to have an open-source decentralized community, I think the foundation is still the most adequate structure you can choose. However, if you just change a little bit, you add some centralized elements in your project, then you might consider to use another structure like an AG or a GMBH. But coming back to your question, if you want to launch again something like Ethereum, I would do it in a foundation, I would still use the foundation. So token sales have become somewhat unpopular in the last one or two years. What's your take on this development?

I think because some of the token sales were really not protocol launches, but yes, there were sales of securities for which you need, especially in the US, special approvals. And that got a bit too expensive and also what they underage. estimated that if they launch a token which is considered as a security, the tradeability of such a token is very limited because all the trading venues, exchanges would need to have another license to deal, to actually exchange and to trade such tokens. That really was getting clear and clearing to some of the projects. And that was a reason why some of the projects said, you know, can we launch it in a way as a decentralized open source project?

And for us, we say, no, if it's not a project like Ethereum, for example, then it's not. Then it's another project. Then you find another adequate structure. And if it is a security token, it's a security token. You cannot change it. Just by naming it a little bit differently. And I think this was one of the drawbacks, you know, that you said, okay, if you look really clearly to some of the structures, they were securities, and that the market learned that it's

more difficult to launch a security token. Secondly, there are not so many really good projects around. I mean, they are, but not in the amount we had in 2017. But they're still coming. You will see, there are some really good projects in the pipeline. Can't tell you now, but there are some really good projects still coming. And I hope they're coming. Because what I always say, you know, you should embrace the protocol developments because the protocol developments, they are planting the seeds for decentralized world because all the thinking, all the development comes from there. Cool.

So non-token sale crypto projects, do they also choose Switzerland as a base? Actually, yes. Switzerland offers some advantage for such projects. It's all about such an infrastructure. if you talk about such DLT or blockchain infrastructure is all about trust. Trust is a very important issue. So if you add some other services to run, let's say, an application, or take the example of a wallet service provider,

you have there a physical storage. Where do you want to have your physical storage? You want to have a physical storage in a very stable jurisdiction. Or if you have, let's say, exchange or transaction activities, which have a potential to be taxed VAT taxing and thing like this. You want to have it in a jurisdiction with low VAT tax regime. So here Switzerland kicks in as a jurisdiction which has a trust reputation and that helped. And you know what really helped and I'm very often being asked, you know,

tell me why Switzerland had for such a long time a lead in this space. Switzerland had an advantage and it was all thanks to Ethereum, the tax authorities as well as the regulators, they could early start to really deep dive into the technology and to deep dive in the

let's say specific relevance either on the tax or legal side and that was an advantage. So give you an example, if you have to talk to tax authorities to explain them what happens in a token generator or in a token exchange, for example in Zook, they understand it. They understand

technology, it's easy to access them because they speak more or less the same language. Yes, I would love to actually dive in a little bit there, right? Because when you started, there was no, you know, there was no blockchain regulations or rules in Switzerland. And then there was no kind of thinking around that. So how has Switzerland evolved as a regulatory environment, crypto space, you know, what kind of guidances, rules, or regulations have, have been put forth and yeah how has that sort of changed the environment one encounters today? First, what helped is that Switzerland before this blockchain wave hit Switzerland, Switzerland has a very liberal legal system. That is one thing which helped. And secondly,

especially in the financial market regulation aside, Switzerland has a very formal approach in a way that either it is a security or it is not. So this kind of more like functional vague description, which we more have in the USA, which makes sense. But on the other hand, it's also very difficult to get a clear opinion whether something is or is not a security. Here we had an advantage in Switzerland. Now, the second advantage which we had,

which was also a little bit surprised to me because I didn't see it in earlier examples in a way like I saw it on the blockchain space, Especially in 2014, in the early days of DLT in Switzerland, the Swiss government issued a report on Bitcoin. So what they did is about on 70 or close to 100 pages. They made an evaluation on different legal aspects, to what extent a Bitcoin is regulated or not regulate

or Bitcoin activities are or are not regulated in Switzerland. So that was a starting point that some of the departments at the government were starting to think and we're starting to write about these new protocols. And then, you know, they were following in the whole developments. And in early 2018, the Financial Market Authority issued the ICO guidelines, issuing or let's say proposing three types of tokens. And this helped also a little bit to guide all the projects and the market in the right direction. It was very helpful.

And finally, what was really remarkable, in 2018 in December, the government issued a second report on DLT infrastructure and the law and relevance on all different kinds of laws in Switzerland. And this was a very interesting report. This report set the basis of a legislation project which kicked off in March 2019 by issuing a draft on a new DLT law and not only a new DLT law, but also a DLT. maybe I'm overstating a DLT security and a DLT marketplace license. So this, in very far speed, the government proposed a new law. There was six or eight weeks time to comment these new proposals by the industries, which we did. And now it's back to the government to finalize the proposal.

And we hopefully, hopefully we will have the fully proposed new draft, which then has to go to Parliament by the beginning of next year or let's say the second quarter of next year. So Switzerland is getting ready to set the legal basis for DLT applications. Very good movement, but for me a little bit still too slow. So it should be faster, but it's a good speed for Switzerland. For people who know Switzerland, you know, this is really already high speed, so I don't want to criticize a lot, but just my message to all the politicians, you know, we need it.

Please work. We need it fast. So do you think in Switzerland the main benefit is having regulatory clarity or are the laws that are being passed also more permissive than elsewhere? The good side is we have more regulatory clarity. That's the good side. Let's say the negative side is we have some unclear situation, especially on the civil law side, on the transfer of rights based on a DLT transaction. here we have an unclear situation under Swiss law and here it's a little bit disadvantage. And the new DLT securities try to now overcome this gap under Swiss law.

That's a little bit of the downside. And what I also think is what is a potential risk in Switzerland is that as a small country, we always need to be very careful that we are not doing something which is, let's say, outside of an international standard because the biggest, countries might then increase pressure on us. So to sum it up, I think Switzerland is on the good path to adapt its regulation to all these new technology, to the new technologies, but the speed is, as I said, a little bit too slow. So Finema, the Swiss Financial Market Supervisory Authority, they recently issued a stable coin guidance, right? Yeah. So from my reading it divides

stable coins into different classes, and that determines how they will be treated by the law. This is particularly interesting one, because stablecoins, you know, building block of open and decentralized finance, and secondly, Libra is also based out of Switzerland. So how would you sum up guidance, and what do you think the consequences are? The guidance are very generic. The guidance are very generic. They contain a certain discussion, So let's say more like an overall view on what different kind of potential stable coin structure do exist. And FINMA does already know. And they want to make clear as well to what would be their regulatory assessment of a stable coin concept as presented by the Libra Association.

So I think these would be the two main information parts which they wanted to show. Now, on the more generic part, you know, it's very difficult also to give a guideline here because, you know, it's not so easy to define what a staple coin is. There are so many different concepts of staple coins. And if you read the guidelines or let's say the guidelines of FINMA, what they say basically is that every project has to be assessed separately because it's really depending on the detail structure of such a stable coin concept, whether it is a payment token or it is already a fund structure like a collective investment scheme

or whether it falls into a payment system under a financial market regulatory license. It really depends on how such a stable concept is set up. I was recently in Switzerland and speaking with a few different lawyers, I spoke about it with you also briefly once. And many people mentioned this idea of an asset token in Switzerland, which I think is considered a security there. And, you know, people are probably familiar with the U.S. understanding of securities, or at least the sort of common one where you have this Howie test. but this asset token seems to be something quite different where you basically say, okay, if there's a token that represents a claim to an underlying asset, then this is an asset token.

And of course it makes perfect sense. Like if, you know, let's say I have a token, it represents a claim to some sort of gold that somebody holds or real estate, or, you know, some off-chain asset that's custody. Of course, it makes sense that this is like something that would be regulated. But I'm curious how that plays into the entire decentralized finance space. So if you have a, let's say, a smart contract that's custodying something, doing something, and then you have a token that kind of represents a claim there. An example could be compound, right?

So you can put ether into compound and then it's going to be lent out. And compound gives you this other token, this C token, which represents the ether that's locked up and the accrued interest. So do you think those will end up being regulated in Switzerland? And if so, what do you think that will mean for how sort of decentralized finance as a broader space will end up being looked at by regulators? Again, first of all, the term asset token is not any legislation which we have in Switzerland. So asset token is something which is used as was used first time. by Finma for their interpretive notes which they issued in 2018. So, and it's very difficult to say what is really an asset token.

What we do at MME, we are, we differentiate between BCP1s and BCP2. BCP1 is a token which does not have any counterparty. The BCP2 is a counterparty is a token which is issued in a counterparty context, which might give you or can give you a claim against the counterparty, either because the token itself does, in the token itself, that such a right is embodied or embodied, or the token is used as, let's say, an instruction and or booking of such a right in another legal context.

So it's very difficult to define what is an asset token. For example, if you have a payment token, such a payment token, can also have a claim against the counterparty, but the functionality is more a payment than having it as an asset, because the asset token is more like, you know, you are invested and they keep it as an asset on my balance sheet.

Now, if you look how the Bitcoin has developed, the Bitcoin as a what we call BCP1, a counterparty-less token, used to be a payment token. And now when you see, you know, for payment purpose, to use a Bitcoin, slow, very expensive, high price volatility. So I would regard now a Bitcoin more like an asset token.

So I want what I want to tell you or want to show you, it's very difficult to use these kind of undefined terms which you use then afterwards to make a regulatory qualification. For me, again, if I qualify a token and you can go on our website, you see how our functional approach is on the qualification. of tokens, you have to go into and dive into the clear functionality of such a token and assess it in the counterparty context. Only if you do that, then you can actually draw quite a conclusion on what kind of quality

or qualification such a token has. I agree with you. In Switzerland, there is a tendency to qualify such tokens if they have a counterparty context too easily as a security. And that's what I exactly mean if you use what you know to a technology which is new. And, you know, at the time the legislator was drafting a law qualifying something as a security, they would not even think of something like a token at that time. So I give you an example.

If you say, okay, I issue a share, which gives you also a counterparty, right, because you have shareholders, right? and you say, okay, is this a security? Yes or no? I would say, yes, it's security. Now, if you issue a token which gives you access to a ski resort to get it as a ticket for a one-day pass up in the mountains, now it's a counterparty, right? You can use it as an asset. Yes, you can. But is it a security? Is it security as it was the idea of the legislator when they were drafting the security laws? I doubt it. So my message is, you know, we need to be more liberal and clear also say, okay, to what extent do we want to have it regulated as want to have it qualified as a security and whatnot? Because the moment we qualify such a token as security, secondary market looks completely different because you only can deal with securities if you have a certain license. So yes, there is a tendency to go back to centralization by a qualification of the token.

So you're moving for us or for Switzerland to be less formulaic about how to classify these tokens. No, I mean to take also a little bit a reasonable approach to say, okay, yes, according to our framework, which is pre-existing, it could be regarded as security, but in the context of the specific use, it's definitely not. And here, that's the dilemma in which we are. Now, if you ask a regulator, you know, sometimes, or there is a moment they have to actually issue a policy or set a policy to say, shall we now qualify it as security or not? And for us, you know, as advisor, you know, it's sometimes difficult to advise the clients because we see a certain tendency and also a certain dilemma on the regulator side. And that's why I say, you know, we need to move.

either we have a very liberal approach by the regulators, which lately there is not a tendency if you see what happens after 2008. So financial markets tend to be a little bit over-regulated. On the other hand, we would like to have also an open-minded approach, how to deal with these aspects, with asset tokens or counterparty tokens, which are clearly not as securities as it was the idea of the old lawmakers. So let's put this a little bit in the context of other jurisdictions. So obviously Switzerland was super early to the blockchain party.

But now other countries are moving in. So Liechtenstein, Malta, Luxembourg, even Germany to a certain extent. Germany? My big surprise, I tell you. What's your take on this? What do you think will happen in the longer run on a global scale? You see some tendency of standardization. I come to this point later on. But I'm so happy that the smaller jurisdiction,

Like Malta, Gibraltar and the Principality of Liechtenstein, they started to do, to pilot, to move. Very good, you know. And, you know, the bigger jurisdictions they love a little bit about, you know, these are the offshore jurisdictions, small ones that try to be attractive and love about these guys. But I think I'm very proud of them that they started to do it. They start to think with all this concept.

Thank you to all these smaller jurisdictions. It will be difficult for them, you know, because if the big ones move in and they get a bit more liberal, they will have a better market. And that's what I always say when I'm talking to politicians and stakeholders here in Switzerland. You see, okay, guys, look what the smallers are doing, but also have an eye open to the bigger ones. As you mentioned, Frederica Germany. You know, they actually implement now in the enforcement of the fifth AML directive. They set up a new legislation which probably comes into force at 1st of January 2020,

which is a real advantage for the German DLT community. So I said, you know, and France, you know, France, they easily, I think as a one or two-pageer, they made it clear that securities can be transferred on a DLT infrastructure, something which in Switzerland is not really happening at the moment. So, brilliant. And I think the UK are also, working on something, Singapore and China, they are moving also very fast. The US is a little bit defining which authority is responsible for what,

so we'll probably have to wait a little bit more. But once the US is settled as well, you know, and I believe they will be settled soon because they see the market. Yeah, there will be some pressure. There will be some pressure around for other jurisdictions. Now, coming back to your question, whether or not we see some standardization. FATF, this summer, issuing the, or let's say, changing recommendation 16, you know, also having now the VASPs a bit more clearly defined and also implementing the travel rules for blockchain transactions, they start to do some standardization for the DLT service sector. So we see already some international standardization now limited to the AML part.

Yeah, so I'm very curious how that is going to play out, right? Because you see, of course, that blockchain and cryptocurrencies and decentralized technologies are also very threatening. You have the existing nation states and especially, let's say, they're very large states like the United States or maybe European Union, you know, that benefit tremendously from having a sort of global control and reach of having their financial system there, having maybe also the US dollar as a global currency. So there's a lot of use. And I'm curious, won't they try to kind of clamp down on Bitcoin or in cryptocurrencies and try to use regulations as a way of doing that? And then also trying to, you know, for example, put pressure

on these small countries, whether it's Liechtenstein or whether it's Switzerland, to, you know, sort of harmonize and, you know, make a joint effort at regulation? Do you think there's a chance of that happening? I think it's you are the younger generation. That's also something which amazed me when I was talking to Vitalik, you know, for the first time. He was also a little bit an eye opener because my... generation, you know, we, I mean, we were born in a more free world, but step by step we experienced that, you know, based on different considerations, you know, market failures, tax evasion and whatever,

it got more and more compliance was taking over business activity and we had new legislations, especially Switzerland, for example, after 2008 adopted the, or let's say, copied some of the European and financial market regulations in a way which implemented new laws, which we never knew before in Switzerland. So we were all born in this tendency to have more and more and more and more regulation. And now your generation coming up, you have more like a sense, hey guys, we have the technology that we can be, we can free. We can actually now transact and change values without asking the bank,

without even asking the government to do that. And this is really sexy and is actually unleashed. something which we have in our DNA, it's freedom. We want to be free. We don't want to actually be told what to do. And all this protective way of doing regulation that you have a government which starts to think for you what kind of laws we now have to implement

in order to protect our citizens. The younger generations, they don't want it because they have probably a bit more enlightened. They have more education than we had at that time. You have more sense of freedom. and I hope, because you will be the next generation of politicians of people ruling the world. So I hope you finally will run a more liberal world in the future. And because actually I myself, you know, I already, when I'm asking myself, you know,

I already gave in a little bit on all this development of new laws and what we need and how we want to protect and how we should protect in other words. Now coming back to your question regarding really a task, hack on a Bitcoin protocol or Libra. There are two different things. I think the world will be liberal to protocols. Because protocols, I think what I've seen in the past, it's an interesting piece of technology and tokens like real native tokens which you use for the use of such a protocols.

Governments, they are not afraid of such kind of tokens, even if they can be used for payments and exchange and things like this. even if they grow. However, if you see projects like Libra, especially if they team up with tech giants, already having such a huge community base and you see what the potential of technology combined with such a huge, huge community base can do, then it gets dangerous and then governments will actually start to interfere, which they did in the Libra concept. You know, you have seen what all the governments, how they reacted, how negative the response was to such a project. Would you agree that governments try to preserve their own controls under the guise of consumer

protection is one thing. I mean, it's also consumer and investor protection. But on the other hand, you know, and I think this is, yes, there is a concern. I think this is a concern which also can be overcome by time. But I think the concern of the government is to losing to control over their own currency. That's, I think, their main concern. So take, for example, Venezuela, you would have Libra in Venezuela. You would have even a more fast-running inflation. Nobody would use the local currency anymore if you had a possibility to use a stable currency issued by somebody else. So here you lose every possible control mechanism of a national bank if you would allow such a system, especially if such a system would run on such a large scale, you know, using the

whole infrastructure, community infrastructure for tech giant. So I think here governments they don't want because they would lose complete control on a very, very important, let's say, steering mechanism of the government economic. So one of the things besides, you know, all of the legal work you've done, right, is you've also been fairly entrepreneurial, and you co-founded a bank named Signum that I think got a full banking license just a few months ago. So tell us a little bit like, how did you end up working on Signum and what is Signum about? Actually, Brian, I was my whole life entrepreneurial because actually this is now family DNA. So it was for me as from school on, clear that I will have my own company. And I was never thinking of a law firm, but that was clear I want to be my own boss from the beginning.

Why, Cignaum. Cignaum came out of what we have seen in 2016, 17, that if you want to make, let's say, protocol or protocol tokens bankable. You need to have a bank able to receive, hold and transfer such protocol tokens. If you do not have this kind of banking layer installed, institutional investors will never touch or will hardly ever touch Bitcoin or ethers or the ripples of the world. So that was what we have seen and you need to have a banking layer. You need to create a a banking layer and a very secure Fiat gateway close to holding such assets. That was actually the starting point.

And not only did the counterparty less tokens, but you know also need to have an infrastructure for the security tokens. And this was because we have seen already the STO's upcoming and the STO wave, which also then started to go down a little bit because all everybody saw the risk. or let's say the challenge of having a secondary market licensed secondary market infrastructure. So both on the side of the countless protocol token as well as on the security token, we saw a need to build a regulated licensed infrastructure. And that was the reason why we said, okay, let's try to do it in Switzerland and start in Switzerland.

So Cignam actually holds two banking licenses or banking licenses in two jurisdictions. Switzerland and Singapore. That's an interesting choice of location. Why Singapore? We only hold one banking license in Switzerland and the capital market service license, the CMS license in Singapore. Now you're asking, coming back to your question,

why these two jurisdictions? We think that Switzerland is a solid trust basis for a banking service. And that's why we start in Switzerland. We also decide that we'll start Switzerland-wide Europe and we think that the future market is not only but probably in next phase predominantly in Asia because we have seen Asia they are moving very fast forward

and that was the reason why we explored Singapore and actually as a matter of detail we found that the whole Cignaum project was starting in Singapore during the Fintech Festival 2017. One thing that's very impressive is, yeah, so you mentioned only started in 2017. There's a full banking license. I remember at one point years ago looking at, you know, new banks being licensed in the US, and it basically seems almost impossible there to create a new bank.

How was that process to get a banking license? How much work was that? How much resources had to go into that? It was actually a one-year work with a lot of resources. I would say there were about 20, 30 people working all the time to set up such infrastructure, not only from a paperwork side, but also you had to create a whole technology stack. At the same time, you were applying for a banking license, even without knowing whether or not you will get one.

We had two main working streams. We had the regular working stream and just closely working behind the, regular working stream, we had a technology working stream, setting up all the technology to be able to pass all the security audits, which were a pre-requirement and finally for the license. In summer 2018, we started with the launch of the project, the real, I mean, licensed project. And thanks to really the management team, this is Matthias Imfeld and Manuel Krieger, these two guys, they are as co-CEO, they were responsible for the whole. whole management of the project and the whole team, and I must tell you, I'm so proud that we have

a multi- jurisdictional team working on it and still working on it. Thanks to this young team, all young guys, highly educated team, it was able to have all these resources available to file and submit all these documents. In addition, I must also say we were so happy that also the Financial Market Authority was quite open to learn and was quite open to work together with us. So we had many workshops with them. We could develop banking customer solutions. We could work with them on the AML solutions and that was very, very helpful. So also during the application process, thanks to these workshops, we could slightly adapt our application. We could also then adapt the technology to see, okay, this is probably going the direction they want. So that was a very, very, very,

very, very intensive period. And I think some of the team members, they worked seven days a week. That sounds like a really agile process for regulator. You also raised an impressive seat round, right? Yes, we had a very impressive round. We were surprised ourselves, I must say. Sigm entered into a strategic partnership with Deutsche Berzer and Swisscom to build a trusted digital asset ecosystem. What is the vision at what stage is this at? I mean, the press was writing a bit too much. We were built a new infrastructure. It was actually not the idea to build a new infrastructure.

The idea was to team up, to think. It was more like teaming up to think what is necessary to make the best use of the technology for the financial markets of the future. We had Swisscom, we had Deutsche Bercer, we had Cignaum, and all these companies were sending the most, the brightest skies to think about how the infrastructure could look like. But it was not the idea that we will create together a huge market infrastructure. It was sometimes a little bit in the press, you know,

oh, wow, these three companies are coming together to build a new marketplace. No, that was not the idea. It was the idea because you had Swisscom as a technology company, you had Cigna as a bank, you have Deutsche Berzsche as a market infrastructure service provider. So actually what for us, let's say the idea was of the partnership was to learn from each other and take back for each of the company what is important to be successful in the future. The work will go on.

We will have several projects. We had one project now this summer. We had a POC, an instant settlement of a Swiss franc token. with a Swiss share in a banking environment. And that was very nice. So we had a ring transaction around four banks, sending money on a DLT infrastructure on one side, and sending and settled the share transaction at the same time.

So these are the projects we will have in future, but it's really like we'll have the projects to learn and then everybody goes back and executes whatever things is useful for their own operation. What do you think are the kind of use cases or the products that are most needed? One thing would be maybe there's doing accounts for crypto companies, there's, you know, maybe doing custody for funds. What are some of the possibilities in products that Cignaum could pursue in the future that

you're most excited about? As you said, you know, it's the custody and transfer services and gateway services. for all the protocol token world. This is already a huge business as such, and do it more efficiently, transparent and secure. That's one business line. The second business line,

when we're changing into the BCP2, what we call the security tokens, here you can help as a bank on an issuing process, then also on issuing digital money. There can be a business case or will be a business case, and on the custodian services, for example that you say, okay, we have in physical custody an asset and we tokenize now these assets. So as Svigern Bank, we have three token engine.

We have one token engine with three token classes. One is the payment token. The other one is the equity token and the other one is the custody token which will issue. And I think these three categories will serve as a first product in the market. However, what we see, we are very early. Our all secondary market, I mean, the necessary secondary market infrastructure at the moment does not exist. Six is also working on it, the Swiss Stock Exchange,

but it's not ready yet. Even if we have the products, you know, available, there will be difficult to get access to licensed secondary market infrastructure on the security token side. But it will come. It will come. you're also involved in a number of projects that are kind of adjacent to this or you know complement this in some way shapes so one of them is dora which tokenizes swiss SMEs and startups then there's custodigit which is exactly what it sounds like a custody solution and kyc spider which obviously is also a kyc solution

How did this come about? So how did you come to spin these up as well? KYC spider is a very old project. I found that KYC spider in 2003 already with a spinoff of the Federal Technical High School. It's an AI solution. So we were spidering big data and extracting compliance relevant information

and made them available for the financial industry. So we started there. And now we are extracting such information on the deal we merge dLT compliance relevant information from dLT transaction with all style compliance information that's what we do now in kYC spider it was more like a pilot it's not a big company we earn a little bit there but it's a very interesting technology pilot which is now running for many many years already and has a lot of clients dora was actually the idea we started with dora in 2016. So it's very early already we had the idea to use now because we saw what the BCP1,

the protocol world can do. And then we said, okay, now we have the smart contracts. We use a smart contract as a share registry. Let's see what we can do. And this was when we started with Doran and Swisscom as also government, half government owned company was very interested. And that's why we started to design it. I provided the first legal concept as well as funding. In 2016, nobody wanted to fund it at the beginning, because, hey, we don't need that. What do you talk about? It's a very interesting, a very interesting concept, so the issuing of shares on a blockchain infrastructure. Here, still some regulatory challenges, but we will come around it. Now, Costa Digit was another project which we also discussed

with Swisscom many, many years ago already. In 2015, we discussed, you know, what could be a potential business case also for Switzerland in the future of digital assets? And I said, look, if you look at the structure of a digital asset, you have the protocol, consensus level, but you have also the custody of the private key level. So here you have a physical touchdown. And the physical touchdown, you know, is something which is also from a regulatory security and also from a trust side very relevant. I said, you know, who else than a trusted, half government-owned Swiss company could better place a role here than Swisscom. You know, so I think you should invest in a costly solution. And I help them a little bit design also how they should do it, that such a costly solution can be used in a banking environment.

How do you deal with conflicts of interest? That's the reason why I'm not sitting in the board anymore of Daua. Because as a board member of a regulated bank, you're not allowed to be in, you have certain strict governance rules. And every process or let's say every transaction which involves two companies in which I'm involved, I have to step aside. I'm not allowed to decide. which hurts sometimes because, you know, I would be more in favor of projects, but, you know, it's good. It's governance.

The rules exist and you know how to apply it. So there's another Swiss Crypto Bank that got a license the same week as Signum named Seba Crypto. How does Signum distinguish itself from Seba Crypto or does it not have to? I think from the offering we offer more or less the same. What the difference is, is SEPA is sitting on an infrastructure of a bank. We have created the whole technical infrastructure ourselves. So I think this is one of the major differences. We are maybe more a tech company and we have more tech involved in our project than SEPA.

You know, the blockchain space is still at its beginnings, right? We don't have yet, for example, applications that really use, you know, on a daily basis by millions of people. And, you know, so still there's a long way to go. When you look at what the future holds of blockchain, you know, the next 10 years, the next 20 years, what is your kind of greatest hope of the change that will bring to the world? And what are some fears you have around how it could all play out as well? One of the, let's say, beautiful architecture elements of a blockchain application is that you really can hold yourself assets. And you can transfer these assets.

I mean, yes, you might need to have a custody solution or a wallet service provider for security reasons. But finally, you as a user, you get access and you can directly transfer. So it's really a possibility that you directly can hold something without any additional, let's say, balance sheet, contamination or intermediary. And I think this is an incredible development, this kind of democratization of services or access or holding property digitally represented. I hope that we will have a lot of digitally represented assets which you can directly hold and that you're, asset or your property is protected. That's what I hope in the future and that we can have all different kinds of assets

on the blockchain. Now, what is my fear? My fear is that because it's so efficient that everything can be traded that it will be too much of financial market regulation contaminated. That's a little bit my fear. That we have a lot of laws

which we apply unnecessarily. And we, again, restrict ourselves. That's what my fear is. My hope is that we have more like an open society, open for technology, and yes, if there are any misuses, we should be strongly fighting against such misuses, but not really covering every, every activity under a very burdensome and sometimes stupid regulation.

Well, I hope that you're going to be right, and it's going to turn out like that and bring much more freedom and autonomy to the world and not to end up being crippled by too much regulation. Thanks so much for joining us and sharing about all the exciting things you're working on. I'm really excited to see how, you know, Cignaum and MME and Switzerland as a jurisdiction will evolve. Hey, thank you, Brian. Thank you, Fridrika. It was a nice talk.

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