Epicenter - Learn about Crypto, Blockchain, Ethereum, Bitcoin and Distributed Technologies - Luka Müller: Sygnum Bank & MME Legal – Crypto Regulations & Institutional Investors

Episode Date: June 23, 2023

As institutional money set their eyes on crypto, some degree of centralisation and regulation was inevitable. However, the key aspect is to limit it to access gateways and not affect protocols’ decentralisation. Recent events have shown that price manipulation is easily achieved in conditions of low liquidity, hence regulated fiat on- and off-ramps will, in the end, also benefit retail consumers. It once again all boils down to achieving these goals while maintaining privacy for users and ensuring that regulations will not stifle innovation.We were joined by Luka Müller, co-founder of MME Legal Firm & Sygnum Bank, to discuss about crypto regulations, institutional investors, user privacy & CBDCs.Topics covered in this episode:The evolution of MME Legal Firm & Sygnum BankSygnum Bank’s pro-crypto services & target clientsThe impact of FTX’ collapse. DeFi vs. CeFiInvestor protection post-Terra Luna’s demiseExpanding in the APAC regionSwitzerland’s pro-crypto regulationsUser privacy vs. KYC & AMLUS’ crypto policy: regulation by enforcementEU’s MiCA frameworkLuka’s insights on crypto’s value propositionCBDC vs. cash privacyExciting crypto trends and innovationsEpisode links: Sygnum Bank on TwitterMME Legal on LinkedInThis episode is hosted by Friederike Ernst. Show notes and listening options: epicenter.tv/501

This is Epicenter, Episode 501, with guest Luca Miller. Welcome to Epicenter, the show which talks about the technologies, projects and people driving decentralization in the blockchain revolution. I'm Frederica Ernst, and today I'm speaking with Luca Mueller, who is the founding partner of MME, a Swiss law firm with extensive Web3 experience and the co-founder of Signam Bank, a crypto-forward bank headquartered in Switzerland and Singapore. Luca, thank you so much for joining us again. Thank you, Frederica. I looked into our records, and Brian and I last spoke with you four years ago. So this was in 2019. And just to give like a little bit of background about you,

so you co-founded the Swiss law firm MME, which helped set up the Ethereum Foundation and structure the Ethereum token sale, along with several other high-profile ICOs like Cosmos and Tesos. You also, more recently, but not all that recently, founded. a crypto native bank called Cignam with headquarters in Switzerland, Singapore. So obviously in this ecosystem, four years are like 24 years in real life. And lots of things have happened. How has your work at MME and Cigna changed over the last couple of years?

I would say in the beginning it was an understanding of how this new ecosystem and will work and what legal challenges and regulatory and also tax challenges are triggered by these new way of issuing decentralization and all these elements

of these new ecosystems. So that was, let's say, in the beginning it was a lot of learning, testing as well and understanding. And what I must say is I have never been disappointed by the technology. It worked and even if you have read the original white paper, the promises were kept. So that was the good thing. What we learned is that in the course of the development you have seen a lot of intermediaries entering into this space and which was

actually against the original thinking of decentralization. But already in the early early days, we saw that there is in need of a trusted digital gateway or a trusted gateway, access gateway to the DLT. I know that some of the hardcore decentralization believers

they would object. Yes, of course, this does not mean that we want to centralize the technology. It means that some centralization in the gate way functionality to the technology is needed. And coming back to your question, first we were involved a lot into the, let's say, layer one and some of the layer two basic infrastructure questions.

And the work has now shifted a bit more to the legal and regulatory questions regarding the gateway functionalities, intermediation functionalities, platform functionalities, interface functionalities to this technology. I think this is a really nice segue to CigNM. So maybe let's talk about because most listeners won't be customers of yours, right? So basically, can you walk us through what services Cigna currently offers and who its users typically are? In the early days of the crypto DLT adoption, we saw that the banks, were quite reluctant to grant access to a Fiat gateway. And then we thought, you know, we should change that.

And that was the reason that was the original Genesis thought which we had when we decided to set up CigNUM as a digital asset bank. And what we saw is what I just referred before, you know, we saw we need to grant a, let's say, for an adoption of this technology and the features of this technology, we need to create, construct, program a trusted access, a digital access to the technology.

That means, you know, trusted custody, trusted transactions, trusted exchanges, price settings, and that was needed. And we made a bet, you know, originally we made a bet and we saw, okay, two bets, actually three bets.

One is that it needs to have a license. This is an activity which is a typical license activity and actually that was the reason why we went for a bank, the highest standard you can actually have as a license. Secondly, we saw in the adoption and development two jurisdictions which were spearheading the whole development, this is and was at that time, Switzerland and Singapore, we saw that the, the US is not regulating.

So without the regulation, you don't have the necessary legal certainty. So we concentrated on these two jurisdictions. And so we had a license, the two jurisdictions focus, and then you need to have an excellent team. And we have an excellent team at Cignaum, setting up all the necessary infrastructure to provide this trusted access to the digital asset world. So coming to the services which we provide, we provide a Fiat gateway, we provide custody solutions, we provide tokenization solutions, exchanges, brokerage.

So the typical functions you need that you can have a very secure access to the DLT world. Okay, so I can have a regular account. you guys that I load with Swiss ranks or euros or USD probably. And I can natively buy things. Do you have your own exchange or how? So basically you say, I say, look, I'm here now. I want to buy, I don't know, finance tokens. Can I buy them on your exchange or what do I do?

First of all, I mean, you need to be a qualified investors, a qualified, because we're not actually off serving for Reuters. detail. This has a specific purpose. That's the first hurdle you have to climb. Secondly, we have quite clear criteria on the tokens which we list on our offering. And it's not actually some of the tokens we list because we actually, I must say the limitation is not always the quality. The limitation is also the technology. We cannot. actually provide a secure storage for all the tokens, which we would like to do. So there is a bit of a limit.

We started with the major ones. So yes, you can transfer Fiat to your account once it's open and you can actually buy via our gateway, whatever token we have listed and keep it in custody in our bank. We are not running in exchange. We work with broker, so we actually get the best price for you when we buy the tokens for you, transparently, open,

and really on a professional basis. Okay, but this is all manual brokerage. I mean, manual, yes, to a certain extent, it is manual. It's not a defy exchange, which is running fully automatically. No, it's not, but it is quite, quite automised. Why did you make the decision to not offer to retail, but only to businesses?

Two reasons. One is it's a regulatory reason, our banking license for which we applied is limited, not the license actually, our organization internal under the license is limited for qualified investors because if we actually would have applied also for or enlarged our, organization also for the retail, this would have been a complete other organizational setup because you would need to actually cover much more demand, much more transactions. And for us, we decided to limit our offering for the qualified, which made it a little bit easier in the license process.

And on the other hand, it is also easier in the technology which we had to set up. At the beginning, I would say we improved. our technology, our platform dramatically in the past. And there were discussions, whether or not we would open our services also for the retail, but at the moment it's out of discussion. If in the future we decide otherwise we don't know. At the moment, we keep our, we keep it as it is. We have a lot of clients to serve at the moment.

So it was a good decision that we kept it like this as from the beginning. Okay. You very diplomatically kind of didn't go into whether I can actually buy Binance tokens as a customer of your bank. But let's say I want to buy Ethereum, which I'm sure I can actually buy. Will you actually do stuff with it for me? So can I ask you to also stake it for me? Of course. Okay. And do you do this in-house or do you outsource it? Half-half. We have some of the infrastructure we have in-house, some of the infrastructure we have. outsourced. Okay. And do you only do vanilla staking or do you also kind of go DGEN bank and try to

generate interests? Say if I hold stables in my account, can I ask you to put it on care for me or something? No, we don't do that. Okay. So it's just staking. It's just staking. We are working on services, let's say on adding also defy services to our, for our clients. But at the most, we are working on services. moment it's not possible and we are in a constant in a constant communication with our regulators to find ways how we can connect to defy services to defy functionalities in a banking environment so and you see here this is a productive interaction with the regulators you know we we it's step by step you know also the defies are getting better and better we are improving our services and I hope once in the future it will be possible that

we as a bank can connect directly with defies at the moment. It's not possible. Okay. You said a moment ago that you have a lot of customers at the moment, which I assume is also partially caused by the FDX demise that we saw last year and the entailing demise of a number of C-Fi venues that kind of culminated in Silvergate's bankruptcy. So basically, a lot of Web3 native companies all of a sudden, that were out of a banking partner.

So I assume that kind of brought you a lot of business, right? Yes, actually we have a decent number of clients. We have quite a big pipeline of prospects, to be correct. Yes, the FDX and other inter-platforms, they brought us a lot of interest. That's correct. Please keep in mind, we cannot onboard U.S. clients. So some of these clients, they don't have a base yet because we simply can't do it. We excluded the US base for the moment as a client base.

So yes, many of the many, we got a lot of inflow because of these events which happened in 2022 and also 2023. Can you share your thoughts on kind of what happened and what went wrong with FTX and kind of the dominoes that kind of. kept falling afterwards. Yeah, you see, that's the reason why we went for the license, you know. You see, if you go the intermediary way, you keep, you hold clients assets and you have to protect these assets the best way you can. You cannot mingle these assets with your own assets. You have to separate them from your balance sheet risks.

And this is what we did, you know, and from the beginning, as from the inception, And we had to because it would have cost. It was too much as capital costs if we had it in our balance sheet. So we had a segregated, secure, protected way under our banking license. And that was exactly the right thing to do. And it is also in the DNA of decentralization. So it's not if you run a gateway for the users, the clients, they want to be sure that their assets are kept and secure, segregated in accounts,

in addresses on which there is a clear control and not mingled up with the balance sheet risks. And I think this is what triggered also the activities at the moment in the US. They have seen at their front door, they are exchanges very successfully operating exchanges, and I wouldn't say that they were criminals or stealing, but they just did not have a proper setup.

I know it's bad for them to kind of call competitors or former competitors out on their behavior. But you would actually stand by the fact that the FTX crew were not criminals? I mean, you're talking to a lawyer, you know, for me, a criminal is a criminal once he or she is convicted to be a criminal. You know, actually that's, and this is a really basic principle, people tend to forget that, you know. And I have seen so many, and that was a former public prosecutor. So I know it's so many discussions about, you know, this.

guy or she is a criminal. And, you know, this is just not knowing all the details of the fact, because if you're a criminal, you need to have it proven and the facts must be absolutely solid. Okay, that's bad. Yeah. I mean, I'm, I'm, I'm, I'm very reluctant to actually qualify somebody a criminal. Yeah, absolutely. But what I can say from, let's say from the outside is that the organization, their risk management, their technical setup was not the proper way to do it. Oh, yeah, absolutely. This is what I could say from the outside. But from the outside, what we can also say is that the FTCS crew, SBF most of all, actually permanently called for more regulation and regulation and all.

How do you kind of make these puzzle pieces fit together in your mind? I don't know. I mean, I don't know if he really called for regulation, but I think if he had, he was right. At the moment, what we have is regulation by enforcement. And I would wish that the US would take the lead in regulation and not in enforcement, you know, and that would be tremendously helpful for the whole ecosystem. I think it's fair to say that kind of in the broader public, the perception of crypto kind of took a beating in the FDX wake.

If you go to crypto Twitter, this perception is much more nuanced, right? So basically, there basically CFI gets most of the flag. And people are quick to point out that actually none of the major defy protocols went down because you don't have to trust, right? So basically if you have intermediaries who are custodying your funds or in charge of your funds, you have to trust them, right? While kind of being active in defy, you kind of primarily have to trust. yourself and your own processes as well as kind of the fact that the defy protocols are properly

audited. Have these narratives in any way kind of affected Signam as well? So I understand that you are a major beneficiary from kind of, I mean, kind of being one of the last trusted, one of the last trusted intermediary standing. Obviously this is kind of like a major bonus. but have you also gotten flag from the other side? Exactly. Yes, of course, of course.

And I think the technology decentralization community is absolutely right. And that's what I always, when I've been asked, you know, say, you know, it's the amazing thing is that the technology so far has not disappointed me at all. I mean, the technology is working properly. You trust the art. you can trust in certain codes. You can, and also the defies are working properly. So what you've seen in the past is a failure of the human interface, you know, whether they

are programming or whether these interfaces involved in custody and brokerage or whatsoever intermediation. And what our goal is and what our vision is at CigNUM is that we want to replicate this technology with our interface, that we want to be as to. trustful as the protocol running, you know. And this is our goal which we want to achieve because

and also in the broader public if the broader public is talking about crypto, very often they don't refer to the technology. Very often they refer to the people trading and dealing and custody and stealing crypto, you know. So yes,

this again wave of negative perception I have actually suffered under many waves of negative perception since I'm working in the crypto space and it always makes me quite angry because it is so often that

let's say these advantages and the radical futures of this technology gets forgotten. The very first domino that got the entire domino's kind of tumbling was

of course Terraduna right? So I mean that was perfectly defy in the sense that basically everything was out in the open and basically it was basically everything worked exactly as specified by the protocol but this still came tumbling down right so basically even if kind of I mean it wasn't it wasn't that the protocol was underspecified or whatever basically other smart contracts worked as anticipated and it was kind of just the economic behavior that was differing from kind of what the founders had envisaged. Do you think kind of customers need to need protection from these kinds of risks as well?

Every program has its limits, you know. And defy have so many features. There are so many kinds of different defies. And they were very ambitious to actually program a algorithmic stable coin. they actually, and I don't know if it works or not, but it was really difficult to do that. And we will see in the future failures of programs inevitable. This happens, you know. The challenge is with these programs being deployed, running on a self-execution basis,

is unstoppable, you know, is that wants out, out. So it's very difficult. So even if you would say we need to protect the investors, it's quite difficult because, you know, an investor, if he, she wants, she can access, even without an interface. And so, yes, that's one of these are the challenges. And I think the community needs to actually, in a way, self-regulate, that they can actually increase the standards of programs,

the standard of functionalities and also expectations how they function on a very high load. And I think the protection must come from the intermediaries. So if they list such a token, they need to be absolutely clear in the risk assessment

and in the risk declaration for their users and clients. So I think, and this is what has to be done, you know. So if a platform is listing these, let's say, a very revolutionary algorithmic defy, they need to be absolutely aware of the risks. And I think at the beginning, you know, in the early stage of crypto, everybody knew about all these risks. And nevertheless, they invested because it was, they took the risk. And I think, you know, it's also something which is very easy to say, you know, after

collapse, a lot of people say I knew it, you know. But before, you know, people hype all these projects and we had them on the show like two or three weeks after they launched and they very clearly caught them out and said,

look, if there's no way, basically if the bottom falls out, there's nothing to break the fall. And they said, oh, we respectfully disagree. So there were lots of people who did actually call them out on, because the economics were blatantly unsound, but basically people were still happy to kind of roll with it

because, you know, number go up. So, yeah. Yeah, you see that's, but that's, and tell them they knew the risk, you know, and some of the risks and yeah, but this is one thing. That's why I said, you know, it's not only a standard on the,

on the gateway, it's also a standard and also quality discussions on the level two, level one. That's of course. this has to be happen as well. Maybe let's kind of shift gear a little bit and look into the future, right? So basically there's another major

Swiss crypto bank called SEPA and they recently expanded to Hong Kong. How do you see the APEC trajectory in the crypto business? Because I mean, you also, you're based in Switzerland and Singapore. So I assume that

was a very deliberate decision. How do you see that region's importance? I would say this APEC region has a very pragmatic access to new technology. That was one of the reasons, you know. They're very pragmatic. And I think this is the Asian style, not too complicated, not to make it too complicated, to see the economic advantage behind it and then try to find sound solutions.

And I think that was one of the reasons why we have chosen to go to or focus on. on this jurisdictional region. It came to me a bit as a surprise that I saw Hong Kong's back in the game. They were very active. You know, many years ago, then we had the Chinese ban.

Now it seems to be a more an ambiguous way, what they are dealing, this Chinese. I can't read them, actually, what they have in mind. But it seems to me, on the first interpretation,

that they are opening again, you know, I mean, they are clever. I mean, they are really clever. And maybe this is another advantage of this region. People there, they are really clever. I mean, they have bright brains, as I said, pragmatic. And they have this also investment gene, which is more open than, for example, we Swiss.

We are still very conservative, traditional. And I wouldn't say not too dynamic, but this region is very dynamic. Yeah. Switzerland still gets a lot of game in the crypto sphere, right? So basically in terms of legal, popular destinations for, you know, choosing your jurisdiction for your project. Why would you say that is? I think the Swiss are very good. We are very good in execution.

We are very good execution. And that means, you know, once we have, I mean, we did not. invent DLT came from other areas. But we have seen the advantages and what we, as I said, because you are very good at execution, we studied profoundly and we see what we can do, where are the risks and we deal with it and we and also we dealt with it at the very early stage of the development and I think this was the advantage. We just did not ignore it or pushed it away or let it let's grow in a jungle.

we addressed the topics very, very early, we addressed the risks very, very early, and this actually created a very fruitful basis or working relationship between the projects, their advisors, the regulators, the authorities, and created trust as well. And I think this ground, this fruitful ground with the history which we have already now, because with every year and every day, you know, you increase your experience in this field, the experience and the know-how and not only from the advisor or, let's say, project sub but also from the, from the, the idea the know-how and the experience of the regulators and administration you have to deal with. Give you an example.

I mean, in 2014, when we had to deal with the tax authorities, you know, it was absolutely brand new for them. Now, if you talk with the tax authorities, for example, in Zook, they know how it works, they know what the mechanics behind it. And it's easy to talk with them because you actually talk with them on the same level. So I would say pragmatic, very good in execution, which means we dig into the details, look at it and execute it with the longstanding and increasing education experience which we had in Switzerland made us a really good jurisdiction for this new technology. Yeah, I mean, as a founder, I can tell you that

this is not the case everywhere, right? So basically, it's actually the case almost nowhere that you can openly discuss things with regulators and tax authorities and so on. And they will actually sit down at a table with you and kind of try to come up with an answer. So I'm quite, I mean, You can hear that I'm from the neighbor in the north, right?

So basically here, they tell you nothing, like literally nothing. It's crazy. Maybe I jump in here. You know, this is a fundamental difference of society and political culture. And it starts with our tax declaration. There is the base of trust. So the government trusts every citizen that the citizen is declaring her, his tax, correctly. So this is this

baseline of trust that the authorities don't think that you want to cheat them. And I think this is the same approach if you address or if you interact with the authorities. When we interact with the authorities, we don't want to cheat

them. And the authorities don't see us as somebody who wants to cheat them. So I think this baseline of trust is one of the recipes why we can openly discuss because it is this base layer of trust which actually helps both sides.

Do you think there's a different understanding of kind of who the state is and whom it serves in Switzerland and compared to Germany? What is the reason behind why we trust our authorities and why the authorities trust us? because I think we have a common goal. We think the government is ours. We think the state is ours.

We have to protect. So it's not actually that we want to go for a short-term advantage. We feel responsible. And I think every Swiss thinks I own a part of Switzerland and I'm responsible also for my soil and for my country. And I think this is a bit more different attitude. it's also the way how we can vote and how we can interact. You know, we have this direct democratic systems which is very unique.

Maybe this is also a part of our government citizen relationship DNA, which we have, which is different in Germany. Yeah, here it's very much, much more top down. So, yeah, I agree. So Switzerland used to be a famed privacy preserving jurisdiction. And this has kind of changed over the last couple of years. So where do you think Switzerland stands in the AML, KYC spectrum in terms of, you know, right of privacy? Yeah.

I mean, there are two really conflicting interests you have, you're mentioning here, you know. On one hand, you know, you have this, and it's very difficult to handle these different, let's say, interests. On one hand, you have the interest to protect your infrastructure from criminals, from criminal money, and that you have the highest standard in AML, KYC, anti-terrorism financing, and all these regulations which are correct, and we have to have there no compromise and the highest standard. We had to be much more transparent due to this enforcement or enactment of all these tax treaties. and tax information treaties, which we had since many years already, which I think is a good thing.

It's a good thing. It's good. It actually creates the same play field for everybody, and that's a good development. I think hiding untaxed money is not a sustainable business concept, and that's correct and that's good, and I think it was a huge advantage for Switzerland. On the other hand, you know, privacy is getting more an issue.

It's too dangerous, if everything is too transparent. And I, even for myself, you know, I think, you know, what, I must say since three weeks, you know, I'm using Instagram because we are launching a new campaign and they said, now, Luca, you have to actually use Instagram as well. And if I search something, you know, I'm amazed what I get as ads, you know, so somebody's reading me, you know, of course, I knew that. But if you see it so visibly, you know, you get a little bit of thread of your privacy. And I think protection of privacy also in the context of DLT actually because we have transaction transparency, you know, this will be a major, major, major challenge in the future. And I think we have, there is, it is a human, a basic human need and wish for privacy and we should protect that. I agree 100%. I think it may be more of a cultural war than a technological war, right? Because in in terms of technology, we can build a lot of privacy preserving technology. But kind of in the last, say, 10, 20 years, in the public perception, this idea that you inherently

have a human right to privacy is kind of been eroded away, right? So basically, people don't really view it the same way anymore as they did say in the 80s or so. And I mean, even things that are done in the realm of AML, KYC and so on, it's somewhat new, right? So basically having bank accounts that are pretty transparent and kind of queryable electronically and so on, this didn't used to be the case, right? So basically things were kind of like in paper forms and siloed away in different banks and so on. And do you think this is something that kind of we need to rise? up against politically because I think it's not a technological problem. I think, I mean, I understand why people, why both companies kind of mine this data and I understand

why the state wants the state of mined, especially relating to financials and money laundering and terrorism financing and so on. But do you think we kind of need to reset this expectation that this is fair game? There are many initiatives. Data protection laws have been increasingly tougher in the past, and I think that's a good development, a very good development. I think we cannot delegate our need for privacy to the government. We can't do that.

The government has its own interests, you know, and has other interests to pursue, like AMLKOAC, and has to balance it as well. But I think we, as human being, beings, it's up to us to say, okay, now stop, this is now too much. And we are lacking a little bit behind. Now, I think we are in a period of we let it go. We let it happen. And it's, we tolerate it at the moment. We tolerate a lot of, let's say, of non-privacy treatment with us. And if it gets too much or something happened, maybe then there is a need created to, you know, to, you know,

to actually object to this erosion, as you said, which I fully agree, it is an erosion of our privacy, of our privacy, you know, and then we have to stand up again and say, hey, guys, I mean, this is not too much. We want to have our privacy reinstalled again because we regard privacy as a human right. Do you think by kind of going along with it for too long, we will kind of forfeit that? That's what I meant, you know. Maybe there's a period of tolerance, you know, we had other, we had other things. We were discussing about climate changes. We discussed about, you know, whatever, the war now, went a little bit out of focus.

And, you know, it's also our, it's our fault as well, because if we decide, very often if you decide, okay, do I want to protect my privacy or do I want to use now this new application, you decide for the application and forget about the privacy? And you're on, you're on Instagram now. But not active. I'm a passive. So I can't even download things, but it's actually, I could, but I just try it out because we run a campaign on Instagram and I want to see how it works. Maybe let's kind of go from like depressing topic to depressing topic.

So the US. So you kind of referred earlier to the US as kind of a culture of regulation by enforcement. and it does actually seem like the US is on an anti-crypto crusade. What do you make of this? I don't know if it's the culture of the US to actually rather enforced and regulate. I don't know. In crypto, it is the case that now the way is that the US authorities are enforcing rather than regulating. I

there are many speculations why it is like this there is a fight between the institutions which of the institutions shall be responsible

for what the SEC has to enforce a very old concept I mean it's not their thought and again

you know this you see how regulation kicks in you know they have to apply what is available and if you have

an old concept you have an old concept and and if it had been clear that the old concept would cover some of the tokens they had probably started with enforcement much earlier, but it shows clearly that it is a dilemma.

You know, it's not clear the situation. Again, another reason why it should be clarified by either a policy paper or a regulation. I think the authorities in the US started with these enforcement activities so late, because it takes also time to prepare and resources to go to do all these enforcement activities to proceed with all these enforcement activities and I think they had been triggered to really start with I wouldn't say a crusade

but with all these activities because they had really a failure like FDX at their front door but I hope this will pass and I'm very confident that it will pass It's just for me, it is a little bit frustrating to see that the questions are the same questions which we deal now, which already were on the table 10 years ago. So that's a little bit frustrating. You know, why are waiting so long and creating this uncertainty? But why do you think they're going after companies that kind of, in my view, are really goody two shoes and kind of ask about regulation how to behave like multiple times, like for instance, Coinbase, right?

So in my view, Coinbase is not a bad actor. No, not at all. Yeah. I don't know. Simply, I don't know. There must be some policy decision. A regulator would not do that without a clear, let's say, internal policy, what they want to achieve with it.

I don't. I can't read them, definitely. I can tell you what kind of the crypto-twitter take on this is. And the crypto-twitrater take is that kind of the U.S. are a nation kind of in decline. And basically the parties themselves are failing and kind of the Democratic Party kind of needed a topic that a decent number of people could rally behind

kind of to make them look strong. And they settled on crypto because all politicians are like 75 plus and they have never actually don't really see the benefit in Web 3 and tokenization and so on, you know, because they are without wanting to be ages because they're old. And it's just a different, it's just different generation. And this kind of seemed like a topic that they could bash because it's, you know, only a minority of people who are, who actually feel strongly about this and they can do this to make themselves look strong and active in, yeah. I mean, obviously, this is very simplistic, but do you think there's something to it? My first reaction when I saw all these claims being filed in court, my first reaction was, what amount of money being wasted at the moment?

I mean, just can you imagine what these claims costs, I would say they add to billions, you know, for what exactly the potential that one part is losing are the other one not that we get some clarity I would say and that's that was actually is painful

you know this really lost and and waste of resources if these resources all these brilliant lawyers working on both sides you know on the claimant and the defendant side would actually put their heads together, work for a very, very concisive, good regulation,

that would be a right investment of funds, you know, and that would be actually putting the US back to the leader of regulation rather than the leader of enforcement. And yes, to a certain extent, if you start, actually you have already lost if you go the enforcement, path. So I feel a bit sorry for the situation as it is in the US. I really feel sorry for the whole industry, the global industry. Let's kind of switch unpleasant topics again. So obviously, I mean, this kind of brings us to the EU, right? So basically the EU kind of came up with this MECA regulation, so markets and crypto assets. How do you see that? Much better. I think this is, I mean, you can always discuss about, you know, the content of a regulation,

whether or not it's too, actually, it's too restrictive or not clear enough. But at least we have a bone, to bone a piece of meat we can work on, you know, at least, you know. And I embrace it. I think it's good, what they did. It's good. I mean, I'm not happy with everything which is in there. Definitely not. But I was also not happy with the, let's say, the interpretation of our Finn mind 2018 when they made the token classification.

I was not entirely happy with all the classification. But at least you had an orientation. And in this new area, in this new area which we are, you know, orientation is really important. It's really important. I agree that you set some stones which are very difficult to carry away later on once we see there they were placed. at the wrong place. I agree with you, but at least they are there

as they serve and as an orientation. So overall, I embrace and I think it's a positive development which in the European Union. Okay, that's good to hear. Luca, maybe let's kind of move away

from regulation for a second. So you've been in Web3 for a long time. Do you use any crypto products, you know, personally? Of course, I'm a big fan of the theory. I'm a big Ethereum staker.

Ah, super nice. So you run your own notes or you delegate? I'm delegating, actually. I don't have the time to run my own notes. Super nice. And do you also partake in defy? Not actively. And here I must confess, you know, I'm not a trader investor in a way that I'm not

this trading guy. I'm in the defy space and I'm in advising. big diva, DeFi projects because I'm genuinely interested in how it works, what are the impacts. But I personally, I'm not invested in defying. Okay. And I think you kind of, you bring us to like the crux of the matter, right? So basically currently you say you're not a trader. So basically a lot of it is still very speculative.

So there's very little actual usage of the underlying projects, right? So how do you see the broader adoption? I mean, you've been in crypto for, what, 10 years, right? So what's missing to kind of make people not just see this as a speculative asset, but to actually use the products that crypto can in principle supply them with? I always was, although a profit, I actually profited from this hype, I was always very suspicious with all these hype and trading and activity around crypto because I saw it come that this would actually be, could have the potential of a backfire.

I would say the layer ones, they need to be still more efficient and secure. We see already with Ethereum, yes, there is a community using it and it will be a protocol layer which will be used definitely. And here it is a new way to invest and to participate in an infrastructure. And this is what Ethereum is actually, yes, creating a new world of interacting with your infrastructure you use.

You know, you can, and I think that's an interesting staking and using this Ethereum tokens. And on the application level, level, you know, what I thought that, I think this was my, my, one of my bets, which I was completely wrong. I thought that the DLT technology could be very radical in the traditional finance sector. And I was first, you know, I was involved in a shared, in a token project, tokenizing shares, because it was. for me obvious that if you have shares

and you have a smart contract running your shareholder register, you could pay out dividends directly, you can exercise your voting rights via your share token, that would be a radical, and it would be really radical and it would be very, very

efficient to interact now you as a shareholder with your own company. And we invested very early in tokenizing of shares, but you know, as long as the whole ecosystem, system is not adopting to this new technology. And if you are alone there, you know, it's very difficult.

So I think in the traditional, in the traditional finance using this new technology stack, it's still we have to wait for these kind of solutions. They're coming. They're coming. They're slowly getting into it, I think, but it needs more time for the adoption than we think, than we thought that originally. but it will come. I'm sure it will come.

Now for some kind of easy applications, the NFTs showed us a way how it could do on the collectical art side, you know, this functionality that you can own something, your own IP and transfer it, that actually is interesting. I've not seen many projects using it now in the traditional space. What you see now, it's in the,

some of the big brands are using it, as first use cases this will come as well. This has also an own, let's say, an own functionality and a own sector which will come

and it's about to come. And the rest is still very early, you know, and as you know, Frederica, it's very difficult sometimes to interact with some of these devices because, you know,

the interface is really for height is for techies, not for the broader public. So I think the adoption is also about, you know, how the usability and interaction with it. Yeah, I think that's a fair assessment, kind of using a lot of the things.

And I think maybe that is also the way that it should be for now, because a lot of them are very experimental, and I wouldn't want to sucker anyone kind of into using them without kind of knowing what they're doing. Let's kind of look at the other innovators in this space. The states, what are your thoughts on CBTC? Yeah, CBTC is a tech, from a technical point of view, not a challenge. I mean, you could do that. Oh, no. It's not. Definitely not. I mean, you could

do that. It's, it's political. I mean, it's, it's, it's, it's actually thinking through, it's, it's reinventing our traditional banking system, you know, if you as a user could sit directly on the balance sheet of the national bank, that's a game changer. So I think, I think, and also privacy as well. I mean, it's, it's, it's, it's, it's, as if you have the ambition to replace cash with CBDC, you have to solve the privacy issue. And that's, I mean, cash is cash.

And, you know, I'm sitting also on the board of Oral Fierstly, which is the money printer in Switzerland, partly owned by the Swiss National Bank. And we were discussing very often. We are discussing about, you know, the challenges of the banknotes being out of the market because everybody is using technology. But if you see worldwide, more banknotes are being printed, you know. It's just there is, again, we refer to what we discussed later on, you know.

There is a need or a, let's say, a basic human need for privacy. And that's why cash, I mean, apart also some of the areas in the world, they don't have the banking systems or they anyhow would need to have cash. But there is a need and there is also wish for cash, you know. And so if you actually enter into the CPTC retail space, you, you need to solve this. If you want to have something functionally similar to cash, you need to solve the privacy issue. But anyhow, what I said before,

it's a political question. It's how you set the new games with the banks and the national banks. It has not been solved yet. Yeah, absolutely not. I was recently at a meeting where the delegate from the European Central Bank, German guy, the guy who's in charge of the technology side, he said that if they actually do a retail CBTC, they will kind of institute a limit for users or citizens

kind of hold money with the central bank because they are afraid of destabilizing the regular banking sector because people would say, look, I'm not getting interest anyways, I might as well just hold my savings with the National Bank, at least there I don't actually have any risks. Do you see that as a, I mean, with Switzerland, you know, being a pretty banking heavy country, do you think there's a battle coming between kind of like

the commercial banking sector and the citizens or the state? I mean, you referred exactly to the topic which I meant, this political part, you know, And I think in Switzerland, we would need to change the law in order to be able to issue a CBDC because this would need probably a new legal foundation to what extent the national bank can now offer in banking services as well. This is my guess. So at the moment, I think it is not on the political agenda in Switzerland to issue a risk.

retail CPTC. What are the current trends that kind of excite you that make that make you kind of like happy to be in this space that kind of get you up in the morning and say, I'm super happy. I'm working in the space because we can make that and that happen. First of all, I mean, what they did in Ethereum with all these new releases, this makes me really confident that we have a very good layer ones, you know, serving the community. And I see a lot of very good layer two projects as well, in a very innovative. good initiatives, very active, a very, very, the community is still very active, you know,

and a lot of positive energy is flowing into it, although you have this constant hammer of negative news and perception, you know, and it also happens to me, you know, I have so many good projects, but if I open LinkedIn, if I open every day, I get a negative news, you know, I even think, you know, we should stop with all these negative news because we get frustrated over. with time, you know, if we read it every day. But nevertheless, you know, I see, I see a lot of positive energy. Yes, it may be the younger generation has not the same patience as the older ones. Maybe we have to, but my message is, you know, my message is don't give up, you know, don't give up, really. It's, it's, with all these negative news, believe it and it's a good thing.

You know, the technology, this technology has a lot of very, very good efficient features which helps us, helps every citizen, so we should actually work for this. And this is which makes me, which motivates me every morning to get up and getting involved in all these topics. But as I said, you know, I must say, I was very often, sometimes I get, if I see another wave of negative news rolling over us, you know, it's getting, it gets on, it can get on your nerves, definitely. If you could wish for one thing for, you know, the rest of the year,

what would you like to happen this year for crypto? If there would be a note from the US government and say, guys, now, next year, we actually issue a regulation, a crypto regulation. That would be really helpful and that they would be enlightening my day. Perfect. Yeah, I think it's not often we kind of wish for regulation, but obviously kind of having regulatory clarity is. Regular clarity, yes.

So important. Yeah. So, yeah, absolutely. Fantastic. So you're wet and Gary's ear. Let's see whether we can make this happen. Thank you for coming on again. Thank you, Frederica.

It was very nice. Pleasant to talk to you. Thank you for joining us on this week's episode. We release new episodes every week. You can find and subscribe to the show on iTunes, Spotify, YouTube, SoundCloud, or wherever you listen to podcasts. And if you have a Google Home or Alexa device,

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