On The Brink with Castle Island - John Palmer (CBOE Digital) on Regulated Digital Asset Derivatives (EP.379)

Episode Date: December 7, 2022

John Palmer, the CEO of CBOE Digital joins the show. In this episode we discuss: John's career and the path that led him to CBOE Digital. The history of CBOE Digital, including the acquisition of ErisX and the company's recent funding round. CBOE Digital's product approach. The regulatory landscape in the United States and how CBOE is positioned vs. offshore unregulated venues. The impact of the FTX fraud on the broader market. Upcoming product and company plans. To learn more about CBOE Digital visit CBOEDigital.com

Today on the podcast, I sat down with John Palmer, the CEO of CBO Digital. CBO Digital is a spot in derivatives exchange focused on digital assets. In this episode, we talked about John's career trajectory. We talked about the ErisX acquisition that formed CBO Digital. Talked a lot about the FtX fraud and how U.S. regulated venues like CBO Digital are positioned in this evolving market structure, a lot more. So it was fun to have John on the podcast, hopefully first time of many. Without further ado, here's my conversation with John Palmer.

Digital. Matt Walsh and Nick Carter are partners at Castle Island Ventures. All of these expressed by them or the guests on this podcast are solely their opinions and do not reflect the opinions of Castle Island Ventures. Guests and host may maintain positions in the assets discussed in this podcast. You should not treat any opinion expressed by anyone on this podcast as a specific inducement to make a particular investment or follow a particular strategy, but only is an expression of their personal opinion. This podcast is for informational purposes only. Brought down by bad mortgage investments, Lehman, which has 25,000 employees will be liquidated. The federal government loans American International Group,

AIG, $85 billion. This is a different kind of market, and the Fed is asleep. The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of constituted easy. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called the Bitcoin.

Bitcoin. John, thanks so much for joining us today. A lot to talk about in your world. Thanks for coming on the podcast. Yeah, Matt, it's a pleasure to be here. Thanks for having me, looking forward to it. So, John, maybe just as a backstory, it would be great to get to know you a little bit better. What was your background and what led you to CBO Digital? Yeah, so I spent the majority of my career in the exchange landscape.

Before that, you know, I sold software. I think, you know, the start of my derivatives or my market experience takes me all the way back to, I started as a clerk and runner on the floor of the Mercantile Exchange, actually, in the SPX Futures Options Pit. I kind of love the dynamic, the energy, you know, when you see a Fed announcement in this, you know, as 20-ish years ago or so maybe. There's a lot that happened in those times, much different than maybe what you'd see today. And as I saw the landscape evolve, a lot of the folks that I work with on there, like, you need to go back and become a quat or learn about this, you know, electronic trading wave that's coming along.

So I went and got my master's in financial math, and I ended up selling software to some of the guys that I worked with on the floor that were moving upstairs to trade electronically. So that was kind of the start of my career. And then I moved in the exchange space, you know, building, building exchanges, building options exchanges, started at ISE, which is now part of NASDAQ was there through that acquisition. And then I joined BATS. And so through the BATS, I, then CBO bought BATS shortly after I joined the BATS team to help grow their options offering. And at the time, they only had BZX. And I think they just recently launched EdgeEx. And so it was, it was a great opportunity for me to, number one, become an expert at the that's technology, which ended up being, you know, kind of the framework or the foundation for

what the new technology at CBO look like post that acquisition. So I joined the CBO ranks. I spent a couple years leading those massive exchange migrations between, you know, call it end of 16 into early 18, CBO proper, or C1, as some folks in the industry might call, where the floor is and the options exchange, one of the largest in the industry. I led that initiative. And then also led the futures initiative, which was kind of funny. As I look back, it's 2022. I actually was in the Bitcoin game. As I helped the CFE team and it was part of the business team there when we launched the first Bitcoin futures way back then. So I would almost say that was my first foray into Bitcoin, though it was maybe not focused on crypto. It was just more focused on futures. Fast forward into

2019, 2020. I saw the crypto space growing. The initial attraction, I think there for me was the technology underneath it. You know, DLT, blockchain, the different types of blockchains. And really, how do you then take that technology, pick up and stand it inside of, you know, either opaque financial markets that are very vibrant, but opaque today, or even the modern, very liquid, very, very robust markets like equities or equity options that we see today? And that was really interesting to me, you know, think about equity settlement, T2 to T1 to T0 versus crypto in this fully funded model.

So that was what kind of really interested me at first. And then the asset class itself, crypto, Bitcoin, Etherum, the different tokens, started to prove that they're not going away. I think a lot of people sat around for a lot of years saying, you know, is this a real thing or not? Me included, you know, I'm not going to hesitate to say that. And so it was evident that this was an asset class that folks wanted to have exposure to, whether it was hedging, speculating, making markets in arbitrage, you know, trading

involve whatever it is they traded, they were accessing this asset class. And at that time, I looked at that and said, okay, there's a tremendous amount of growth, a tremendous amount of maturity that I think this asset class has to go through when I compare it to maybe some of the asset classes that I'd spent the majority of my career leading up to, you know, 2020, 2020, and I said, there's a lot of things that I've learned that I would love to bring into the crypto industry. And I'm sure everyone else that all the other called tradfires that have moved into crypto, maybe over the last, you know, five or 10 years have said the same thing. And so that was, that was true. And so at the end of 2021, I actually left Sibo to join an international crypto exchange

to get, you know, it's kind of like the best way to learn is just jump in. So it just jumped into the deep end, learned as much as I could, spent a lot of time on the retail side of the fence, you know, building apps, building all the things that a super app maybe needs to offer to be able to onboard a retail customer in crypto, spent time working with regulators. on building derivatives internationally called perpetual futures and things like that that are very vibrant in the international stage. And so it was a really great opportunity. At that time, Sibo had announced by the purchase of ERISX and then closed that deal in May of

2022. And shortly after the closure of that deal, the opportunity presented itself to rejoin CBO and lead the digital team, you know, as it enters its next chapter. And so it was really a fantastic opportunity for me to kind of come back to a place where, you know, I had a tremendous amount of, opportunity, tremendous amount of growth and enjoyed my time with the company, but also do what my new kind of fangled love was, was, you know, crypto markets. So, you know, ultimately, here I am leading the CBO Digital team. We originally, AirSax, as you may have mentioned,

we rebranded in October to Cibodigital. So I'm really excited to be part of the team and leading us in our, in our next chapter. Well, as a former board member of Arsax, it's really exciting to see what you guys are building there. Maybe for those who aren't familiar, just on terms of the product. So where does it stand today in terms of what you guys are offering? Where would you like to take it over the next few years? Yeah. So we're in spot and derivative markets today in the U.S. We have 51 state and territory MSPMTLs. So we cover the entire fence, including the New York bit license. And then in the derivatives landscape, we have a DCM regulated by the CFTC, so an exchange in order to list and trade derivatives. And then also a DCO or

clearinghouse also regulated by the CFTC in order to clear those derivatives. So from a derivative perspective, we look and feel a lot like a lot of the other traditional finance-style derivative organizations, you know, call out CME and others. We have, you know, the same kind of two-pronged approach exchange and clearinghouse. The one thing on the derivative side is our model is fully funded today. And in U.S.-based derivatives, that tends to, you know, it doesn't allow leverage. It doesn't allow the use of capital or drive a capital efficient. and offsetting and netting and things like that when you're when you have margin. And so that's actually something that we're working with the CFTC currently with.

We have an application in with them to expand our ability to clear margin-based futures. And so we want to be able to do that on crypto derivatives. We believe we're hopefully in the very lay-a-latter or ending stages with them on that process. And hopefully pending their approval, we'll be able to launch and offer margin-based future trading early next year. That's kind of, you know, where we want to take it, you know, spot and fully funded derivatives today, early 2023 margin-based futures as kind of step one. And then beyond is really, you know, we have a rough guide on the types of products or the areas

where we want to grow, but the space changes very rapidly. So we're looking at it. And the regulatory space also is changing very rapidly, I think, in the U.S. And so our roadmap may change. And I think we're well positioned to be able to pivot rather quickly. if we need to, but as I look at what's missing or maybe what isn't as vibrant in the U.S. market that we believe we can offer and be competitive in is number one additional derivatives. So we see futures on BTC, Bitcoin, futures on Etherium out there.

Is there an opportunity list futures on additional tokens at the CFTC level? Think of other layer ones, you know, some of the top 10 or 15 tokens out there. Time will tell, obviously, the security or commodity debate will come into that. and, you know, SEC versus CFTC regulation will come to that, but those are opportunities I think we see where we'd like to be able to compete. And then other non-direct token types of derivatives, think of, you know, what type of derivatives can we offer to miners or to other participants in the crypto industry that are looking to either hedge their exposure or lock in future profits? Think about traditional financial derivatives or commodity markets. You know, how are the players

across the entire industry, not just derivatives industry, but corn. As an example, you know, how are different participants using corn derivatives to access it? Can we think about that in the same way for crypto derivatives? And what types of products can we create and deliver and offer to the industry that are going to be beneficial? Clearly, volatility in Bitcoin and Etherum and the other tokens is pretty big. And a lot of folks will talk about that. So Cebo being the home of VIX, is there something in cryptoVal we can do? You know, we don't really want to leave any stone unturned.

but those are some of the things. And then when we talk about volatility, you talk about options. And so, you know, what type of options offering can we build? What does it need to look like to get true adoption? And when I think about adoption, it's not just institutional or market maker adoption. It's how can I also get retail adoption? And so the design of the product, how consumers or investors can get access to it, what means they have to do to get that access and how much it looks or feels like

the other access and the other derivatives that they get exposure to today, I think is really important. So those are the things we're going to be thinking about and those are the types of products that really, I would say, in the next 12 to 24 months, we realistically believe we can bring to the market. What the final product will look like is still TBD, but those are the big things. And then I mentioned our clearinghouse. One of the things I think is stressed currently in the crypto landscape that we'd, you know, want to also bring to the table as capital efficiency. So the market is extremely fragmented.

The concept of fully funded is onerous in the sense of using your capital the most efficient way as possible. And so when I think about an intermediary or I think about a market maker, I think about a prop trader, maybe not as retail focused, but some of the asset managers, etc., they have a significant amount of capital parked with intermediaries, FCMs, retail brokers, institutional brokers, prime brokers, whatever they may be, and they're trying to use that capital as efficiently as possible. So using our clearinghouse to be able to drive increased capital efficiencies,

I think is really important. So from a derivatives perspective is having a spot and derivatives platform on the same tech, having a clearinghouse that can service both, I think gives us an interesting opportunity to say, hey, is there some cross-margining? Is there some efficiencies we can drive there from a U.S. regulatory perspective? And then also as we add and grow the derivatives footprint, what other additional efficiencies we can drive. And then that's thinking about it in terms of just cross-tradable product efficiencies, but then from a clearinghouse, what type of collateral are we taking?

And can that collateral be used in order to drive additional efficiencies, right? So USD is what we offer today in terms of collateral treasuries, I think, is a fairly easy or a next step that would make sense if you look at other. DCOs and clearing houses in the U.S. And then even do we get into the crypto collateral game? Clearly, we need to work with our regulators. We need to be very prudent. You know, we have to have sound risk management. But there's a lot of efficiencies we can bring to our participants.

Hey, come with us, trade spot. We use Bicko today as our custody, so we don't do it ourselves. But, you know, you keep your token with us. And then, hey, we can give you that in the sense of collateral. And you can go trade some derivatives. And, you know, it starts to make a lot more sense. starts to look and feel a lot like how those parties are participating in the norm or the more modern, liquid, robust, and deep markets that the U.S. has and has been known for

for many years. And, you know, so ultimately that's the end goal and how we get there. There's a couple different ways, but those are some of them. Yeah, that makes a lot of science. I mean, one of the things that's been really, I would say, challenging for a lot of investors and even operators in the space is just the market structure for derivative. in the crypto space. So you had this situation, and it still exists today even after the collapse of FTX, where you have unlicensed offshore venues that are offering, you know, more coins,

certainly coins that would be perceived to be securities probably in the United States, you know, more leverage derivatives contracts, and onboarding a lot of U.S. persons at the same time. And so, you know, I've always sort of had the view that that market structure will evolve, but it's been a little bit slower, I would say. How do you deal with that from an operating perspective when you have competitors that are not playing by the same regulatory landscape, but competing for the same customer base, potentially? Yeah, it's a tricky structure from a competitive perspective to deal with.

We're kind of operating maybe with one arm behind our back. And in general, I would always tell everyone, you know, there's a reason why on the international side, you're not supposed to be able to onboard with those platforms and to use a VPN or maybe however other means you are gaining access is probably a reason why it's that difficult. And so I think diligence and understanding, you know, how those parties are operating is really important.

And that, you know, that goes case in point to what we've seen really happen over the last, call it the last six months of crypto, you know, not only what maybe caused us into the April, May, June timeframe, but also what we've seen regarding FTX most recently. But for us, I think we need to be steadfast in our approach. You know, our tenants are regulatory first compliance-driven organization. We want confidence to be instilled in our investors, customers, partners, institutions that are using CBO Digital and its services. And we believe that if we continue to do that, we continue to offer them some of the

products that I just spoke about, that they're going to understand and they're going to see the value that we're bringing to the industry. You know, I never want to be the last man standing because usually that means. that there's customers that are impacted. There's money that's been lost in the industry. And so in general, the industry needs to adapt, grow, advance itself to learn from those things. But the way that we've built Cibodigital from day one and really the tenants that we

operate on is because we don't want those things to happen and because we see how liquid, how robust the U.S.-based markets are, and we say, we can get crypto to that. can do it in the same way. There'll be a lot of firms that say, oh, that type of platform doesn't exist yet. And I would almost argue to say, I disagree with you. I might be biased. I'm leading the CBO Digital team, but that's exactly what we've built. And so part of it is we need to expand our brand.

You know, we need to make sure firms understand what we built, how we built it, why we've built it the way we've done. And then the rest of it is, you know, build the right product, talk to the right folks, and educate customers, educate regulators, help the industry. grow, have a larger footprint in driving that market structure and, you know, maybe clarity from a regulatory perspective as much as we can. And if we do all those things right, you know, ultimately it's not so much of if it's just when. And then I think we're really well positioned for that when that day comes. And even then to that note, we're seeing it happen, you know, in real

time. So, you know, very excited about that. The FTX collapse. I guess there's a lot to talk about here just from a, it's obviously one of the largest frauds of all time. But one thing I'd be curious to get your perspective on is they were pretty far down the path with the CFTC over a pretty novel structure that would have had pretty profound impact on just the way that these markets function. So maybe talk a little bit about what they were trying to do, what your views on it are, how your model is different. Yeah. And I think, you know, for the audience, that maybe isn't in the weeds of the FTX proposal and what it was. And even to this day, their proposal with the CFTC has now been pulled. So it's not even active or out there. But the highest level summary of it was,

you know, this concept of direct to retail, clearing and margin. And so what, what that means is if you look internationally, if you live internationally, and you're able to on board with these crypto platforms, they're able to service you and provide you leverage straight directly to you. So you give them 100 bucks, they say, I'm going to give you 10 or even 100 times leverage. You get that buying power. Then you can get access to the spot. You can get access to derivatives and a number of other things. If we take that concept and we look at how U.S. markets are structured, there's usually at least one intermediary, as we'll call them, in between the exchange and the end customer institution. And so in order in U.S. markets, in order to provide margins, specifically with the CFTC to customers or institutions, you have to do so in an intermediated fashion.

So we would have to work with FCMs in the industry in order to provide that access to either an customer or an institution. Whereas again, in converse to the international landscape, you'd be able to just directly on board with those exchanges and get that potential exposure. The exchange could choose to give it to you or not, essentially. essentially. And so that's the concept of intermediation, I think, is the biggest difference between largely what we're seeing in the international crypto market and what we're seeing in the U.S. market. And that is really the crux of what FTCs proposed, is they propose basically to bring the same model from the international landscape to the U.S. And there's a number of tenants in which they built that proposal off of concepts called auto liquidation, technology, etc.,

I won't get into the details there. Some of those are novel. In some respects, some of those are not in the sense that, you know, FCMs are performing liquidation measures today. So having an exchange due auto liquidation versus an FCM doing liquidation maybe isn't novel. It just might be the party in which doing it is different. But if you sum up everything to your point, it's a pretty novel change to the U.S. market structure, which we've seen over decades in a century or more than a century,

developed into this intermediate model. And CBO Digital is built for intermediary. So, you know, as I talked about earlier, our mission really is to provide access to crypto the same way firms and customers get access to equities, commodities, index options, equity options, options on futures today. And so to do that, you have to load up your retail trading app or your broker or call up your...

F-CM and say, you know, I want to get exposure in XYZ. And so we see a tremendous amount of value that these intermediaries, whether they're, you know, retail broker-deaters, their FCMs, depending on the role, prime brokers, et cetera, they're all serving a certain type of role in the market structure. That's their expertise, right? That's what they've been built on. We want to work with them. They're the experts at the risk management.

They're performing the KYC and the ML checks they're performing, et cetera, et cetera. Let's work with them. Let them continue to know the end customer and know their instruments. institutions really well and do what they're doing really well and allow them to continue offering the services that they're offering, we're going to continue to do what we do really well. And that's we, CBO Global, and that's to operate robust, resilient, trustworthy markets in any asset class digital, just being the new space and CBO Digital founded, you know, four years ago, at least digitally focused, has been, that's been the tenant of which we, you know, we really

started everything on. So it fits really nicely into the CBO umbrella. And, you know, again, Again, back to the intermediation or the intermediaries, that's our focus. And we want to be a strong clearinghouse. We want to be a strong exchange. Let's let the customers access us the way they access us everywhere else. And so, you know, that's at a summary level. That's the biggest difference between our application, maybe with the CFTC today and in what FTC had originally proposed to the CFTC that's been returned.

I guess we'll never know in a lot of respect if this was actually. close to being something that was implementable. You know, if you think about it, I think a lot of people in this market knew that there was an issue of FTX owning Alameda and there being a massive conflict there. And a lot of people were scratching their heads around how they got so far with the CFTC and how they made so many inroads in the United States more broadly. I don't think a lot of people had on their bingo cards that this was just a total fraud. And he was using customer funds to make personal investments and things like that.

So, you know, what was your? reaction when this all started to happen a couple of weeks ago? And curious what your view is just on how this will impact the market more broadly speaking. Yeah, I think my reaction probably along with the majority and maybe the high majority of everyone was being surprised. I think even as we learn more and more, the details that surface, I think, continue. Maybe at this point, maybe we're not surprised because we've learned so much about it. But I was just, you know, kind of, frankly, just speechless as I learned about it. You know, anytime that you have customer funds, at least when I think about it from a

U.S. perspective, they have to be segregated and there's rules and ranks surrounding that. So when you take customer funds, you re-aposicate them or you do something with them, clearly there's a significant amount of risk. And I think if you're doing that, there needs to be disclosures, you know, and there needs to be really prudent regulatory oversight and risk management and really decentralization of, you know, of responsibility. in the life cycle of the financial market that you're serving, if in where that happens, you think about banks holding deposits, taking those deposits, and doing something with it.

So re-hypothicating customer funds and loaning them out or trying to get yield on them is not new and is not novel to really any market. And no one, there's always risk involved. But how they do that, the rules and the guideposts or the guardrails that they have in order to do it and the oversight and the checks and balances that are all included in there, at least for the U.S. perspective, are very high and they're very high for reasons of which we now know and see in the sense of what we've seen happen with FTCS. When I think about what's to come, number one, as an industry, we have to instill confidence in all investors. And I think especially

retail investors is, you know, you've seen bank runs. You've seen people flight to safety pulling all their funds from exchanges or platforms or other places. And you see the contagion, you know, slightly growing, whether it's due to that or just due to, you know, exposure where maybe they should or, you know, where they had exposure, or maybe they shouldn't have had exposure. And so we have to reinstill that confidence, right? And there's probably going to be a lot of people that don't want to trade crypto because of this, especially if they lost money with FTX.

And I don't blame them for thinking that way. If they had money on FTX and then they don't get it back, That's a heartbreaking kind of scenario. You never want to see that happen. But ultimately, we need to show end users that we can be responsible in that there are platforms or places that if you want to have exposure in crypto, you want to own it, you want to speculate, you want to use it to hedge, you want to have 10% of your portfolio in it because diversification is diversification or whatever.

The reasons are you have, you can do so and know that your funds are safe. that the firms you're engaging with know what they're doing, have a massive track record in doing it across multiple assets, have significant oversight, significant system safeguards, you know, I could go on. But I think we have to show the industry that. And so that's, you know, part of our model and part of, you know, why we built everything the way we built.

And so we issued a letter to our customer shortly after the event to make sure they understood that, make sure they understood our approach to solving these, you know, these risks that are perceived or maybe, you know, have been highlighted out of the FTX collapse. Part of that is, you know, segregation of customer funds. Part of that is separation of duties. Part of that is, you know, disclosures. Part of that is bounty risk or trading risk in the sense that, you know, we don't have a trading arm.

I see about digital. We don't operate a prime broker. We don't custody our own assets. We use third parties. And we use a qualified custodian, as Bicco has alluded to, which is a really fantastic designation. in the custody space. So these are things we wanted to make sure our customers knew that we were doing to make sure that they knew they could be confident in where their funds are.

So we need to do that. We need to do it not just see what digital is going to be able to do it on my own. We as an industry have to do it. So everybody globally needs to do it. And in the U.S., specifically, I think there's been a lot of call to actions in terms of the regulatory clarity that I think the U.S. industry wants to see whether it comes from the Hill, the lawmakers, whether it comes from the regulatory bodies,

the CFTC and the SEC, and the SEC, and the states, you know, I don't think anyone has a preference. I mean, at least I know that CIPO Digital doesn't have a preference. We just, the better the guardrails are framed and shown, the better we can operate. And what that means is we can provide these services to these customers in the U.S. with oversight, with a model that we know works,

and it's worked really well for a really long time. And hopefully that means they don't try to find ways to access the international markets. Hopefully we see institutions that are sophisticated that have been able to stand up, maybe offshore entities to access these markets, bring these assets back onshore. Because now it's, hey, I'd rather do it this way. And finally, there's platforms that are liquid that are deep that I can access, you know, and offer the same products that are accessed in the international space. So I think we're starting to see more and more and more firms and industry participants kind of get on board with this.

And so I think we're going to continue to see that. And so I'm hopeful to see that clarity kind of being driven. Or I've referred to it in the past as like this fog, this regulatory fog over the, you know, specifically at least the U.S. landscape. I like to see, you know, lift that fog so that way we can kind of move forward and grow the ecosystem. It's super frustrating, right? because you point out that these markets are less liquid. And so you get these comments from the SEC in their denials of various Bitcoin ETF applications that point out that a lot of the spot market is happening outside the United States. But at the same time, you have these regulated

financial firms that want to be in this category but aren't there because they're saying, well, I don't have clarity on who regulates the spot market or I don't have clarity in terms of whether or not some of these tokens or securities or commodities. So I don't know how to think about that. So it's clear that we need that clarity as an industry on those two issues. It's just who's the regulator and how do we think about a token construct here? What's it going to take to get there? I mean, is this going to take an act of Congress? How are you guys thinking about it? Yeah, I mean, that's a good question. It certainly might come to that. And, you know, obviously, we just exited midterm elections. And so, you know, how we see that frame out in terms of who's

sharing what committee on, you know, whether it's in the House or it's in the Senate. You know, I think those are still kind of being flushed out. And so that likely will have some impact on some of the bipartisan bills, you know, that are on the floors. You know, so that's certainly one way. And, you know, certainly have seen heightened calls to action from members of each of those areas to get something done. You know, so that's certainly a possibility, though. I don't think we'll see that in the short term. Those things take some time and I think are probably longer term, you know, things that we'll see. and then we could see, you know, some sort of regulatory understanding or, you know, seeing the CFTC and the SECC kind of put our guard rails. I know everyone kind of reverts back to, you know, if it's a security, it goes over here, and if it's a commodity, it's going over here.

But what that means is then we have to define what a security and a commodity is. And I think that's probably really, really difficult. And that's probably not going to happen, at least this year. Certainly not. And when I mean this year, I'm actually thinking about 2023. It's definitely not happening in 2022, unlikely to happen. in 2020, and who knows if 2024 is available. Just, you know, that's a pretty big definition to do. So in between us being where we're at today and getting to that, which, you know,

whether or not that does anything is, you know, TBD is let's provide a framework that allows platforms, exchanges, retail broker dealers, FCMs, banks, prime brokers to operate in the space, to offer services to. their customers with no enforcement options out there, right? So they can do so knowing that, you know, they can operate within some construct without the fear of having some sort of legal recourse with any regulator. And then we can iterate. One thing I think that's interesting that maybe not everyone knows is the regulatory framework in all the asset classes that are in the U.S. hasn't been like this forever, right? There's always growth. There's always changes happening

being proposed, whether it's rulemaking changes or SRO's making changes or participants lobbying for changes, pilots being done. So, you know, there's always attempts in the industry to make it better. And so I don't think that crypto would be any different. But before we can do all that, we need to get a place where all the services and all the parties that are operating in traditional financial markets can operate in crypto. You know, I think about like an example, like take an asset manager that wants to put, you know, 5% or whatever the percentage. their funds in crypto, well, let's say most of it's in equities and maybe equity derivatives, well, how are they getting access to the markets today? They're not connecting to an exchange

directly, right? They're using an intermediary. I don't know who that intermediary is, but it could be a number of different firms, a number of different ways with a number of intermediaries in between. If not all those intermediaries in crypto, they're going to have a really hard time getting into crypto. And then in order to do it today, they may have to connect to the exchange directly? Do they have the operations and the treasury management and the functions internally to do that? So it's the fragmentation from a market structure perspective that I think this regulatory, you know, called Fogg has caused is really, I think, keeping firms that would like to have exposure in crypto out of the market because they just, they can't traverse the

obstacles because it's so different than what they're used to trading. And so again, that goes back to kind of our point of saying, hey, we want to work with all those firms. We don't, we're not trying to interface with the parties directly because that's very novel to them. And it's, it's foreign, right? So let's give it to them a wrapper in an experience that just works because all the other workflows they've built for all the other asset classes work this way. And I think we would see significant, wide-scale adoption of both spot and derivative crypto. And what that does is it adds a tremendous amount of competition for price discovery, tremendous amount stability, I think, in the sense you have more parties on a bid and offer. So when you see moments of volatility, there's better price formation, there's more stability.

And what that does is, again, you know, it just drives more confidence and more stability and more firms will come in. So it turns into kind of a snowball approach where it just gets bigger and bigger. And I think that's, you know, that's only going to benefit not only all participants, regardless of where they stand in the market structure, but ultimately at the day, it's going to benefit the end customers and institutions in the sense that they're getting a better price, a more stable price and a more fair price when they want to enter the market, which I think is ultimately what we all want, regardless of where you sit in the industry. Yeah, you know, I think you could make a strong argument that everything we're talking about

if you can remove that fog, then it benefits capital formation at a national level and just in terms of making the United States the place where a lot of these things are transacted. I mean, you think about getting to the point of regulatory clarity on securities and commodities and what it takes to have digital representation. You don't have to squint too hard to see that people will try to tokenize things that exist in the real world, whether or not that's REITs or whether or not that's commodities and representing them on blockchains, tokenize securities. Are you guys looking at that space?

interesting to you at some point in the future? So right now, Sebo Digital, we're mainly focused on the trading of just cryptocurrencies, if you want to call it that. So I'll call that walking. I think what you're referring to is, you know, the tokenization is a lot of firms, a lot of folks are going to referring it to or the digitization of financial assets. I call that running. You know, I think in general, Sibo holistically sees the future of finance having some digital element to it. At what length and what degree that digital element is, I think it's still TB. So with that, we want to make sure that we're positioned well to be able to provide services to our customers and to the folks that we interact with on a global level in that vein. So if and where we see opportunity there, especially when it comes to competition, operating something that's resilient, that's innovative.

We want to be there holistically at Sibo, whether or not Sibo Digital is in there or not. Clearly, we're focused on the cryptocurrency arm at the moment. but certainly a lot of overlap and a lot of similarities between the two things. Yeah, that makes a ton of sense. So, John, where can we send people to learn more about SIBO and curious just what's on the horizon for you guys? Yeah, so I mean, website www.com is a good landing page to learn about all things, CBO Digital in terms of what's bought tokens we offer for trading, what type of derivative assets are out there. You know, a lot of our press releases will be there as well, including our announcement on our planned equity partners, and which I'll note is, I think, is a really great showcase of the conviction for institutional.

I know a lot of people will ask, you know, what are you seeing in institutional customer demand? You know, we've put together 15 or so plus or minus industry participants to come in as minority shareholders of CBO Digital, which I think is a reflection of their conviction in crypto assets and their conviction of our. mission. So sidebar there. And I think that that's really a showcase of I think what's to come in the industry holistically, but also at CBO Digital. But the website is going to contain all that. And I think what you'll see to come is we're working with those partners, as I just mentioned. I think, you know, some of them trade with us today, which is fantastic. Some of them don't. So we want to get them onboarded. We want them to come in whether they're a market maker or their intermediary, you know, access our markets and provide their customers, you know, with the

products and services that they're doing and using SEPO digital to do that. So we're really excited about that. To that end, we've seen a tremendous amount of growth post the acquisition in May of Sibo. So I'll call, you know, I'll call that our floor in terms of maybe how our volumes have looked. October was, you know, the best month that we had post close of the acquisition. And November is shaping up to be a record setting month for us with a, you know, a 5 or 6x growth over October. in terms of volume. So I think we're somewhere in the 70 to 80 million a day range in November, which is, like I said, shaping up to be the best month in the history of Cibo Digital. So I'm very

excited about that. And obviously our customers are the ones to thank for that because they're showing their conviction in our mission by trading on the platform. And that includes a, we actually had a one-day record set in November, I think on the 10th. We did about $228 million in spot transactions on the platform. And so that's, you know, it's a drop in the bucket. Maybe if you compare us to a finance or someone that's doing four or five billion a day over a 24-hour period. But for us, it's a massive milestone. And I think it's a showcase to the technology that we built or we ran fully through that, no issues, no downtime.

And our platform has really built the kind of scale. So I would say look for more of that from us over the next couple months. And then hopefully early in the year, you'll see an announcement from us regarding margin futures, you know, pending the CFTC sign off. So definitely, stay tuned for that. Well, I definitely, I would have loved to see the margin futures a little bit earlier in the life of ERISX, but you guys will definitely get there, perplexing that it hasn't happened yet. But I think between the equity syndication and just the changes in the market structure, it's really setting up to be probably a really great 2023 for you guys. So appreciate you coming

on the podcast and telling us more about it. Thanks, Matt. Yeah, it's a pleasure to be here and Thanks for having me. Thanks for listening to another episode of On the Brink with Castle Island. To find out more about Castle Island, visit castle island. Visit castle island.vc. To listen to all of our podcast episodes, please go to On thebrink dashpodcast.com or just click on the tab in our website. Thanks for listening.