On The Brink with Castle Island - Mathias Imbach (Sygnum Bank) on the importance of crypto banking (EP.153)

Episode Date: December 2, 2020

Mathias Imbach, cofounder and CEO of Sygnum Singapore, joins the show. In this episode:  How Mathias came to cofound Sygnum The state of affairs in Crypto Valley in Switzerland today Why crypto banks are necessary and useful Why the company is split – cofounders, offices, and investors – between Zurich and Singapore Why Switzerland and Singapore are suitable venues for a crypto bank The case for convergence between traditional financial infrastructure and the crypto industry Sygnum's product lineup Current regulatory attitudes towards the crypto industry in Switzerland in Singapore How Sygnum compares with the entities receiving crypto-focused bank charters in the U.S. Switzerland's treatment of the Travel Rule for crypto exchanges The current state of EU regulations for crypto service providers How Sygnum created a tokenized Swiss Franc backed directly by central bank liabilities Differences between tokenized base money and a state-issued CBDC Mathias' explanations for the renewed enthusiasm for Bitcoin in the market Why Bitcoin and gold decoupled earlier this year – and how Bitcoin stopped being a rates bet How Sygnum's clients are an indication of the changing nature of Bitcoin investors

Hello, everyone. Welcome back to On the Brink with Castle Island. Today, we sit down with Matthias Inbach, who is the co-founder and CEO of Sigmundum, a digital asset bank based in Zurich and Singapore. So on this show, we've focused a lot on the crypto banking sector in the US. We've sort of neglected Europe a little bit, and I broadly knew that there were some crypto banks operating in Switzerland, and I wanted to get to know them better. Cignam does a lot. They are a fully chartered bank, and they provide a number of services for digital assets, custody, brokerage, tokenization.

They have a Swiss francs stable coin backed by Swiss francs held at the central bank. They have various asset management products. They have a crypto exchange traded product under the ticker, which trades on the sixth Swiss exchange. They're one of these new classes of institutions with a crypto-native approach, but full connectivity to the financial system, which is a really fascinating phenomenon, which I don't think is going away anytime soon. So in this episode, we talk about crypto regulation in Singapore, in Switzerland, and changing regulatory attitudes there. Talk about Switzerland's more aggressive take on the travel rule. And what

Cignam is hearing from their clients, which explain this renewed enthusiasm for Bitcoin. So without further ado, let's jump right into the episode. 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 into Britain's ailing economy with a new round of quantitative easing.

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. Matthias, welcome to the show. It's a pleasure to have you on. Thanks for having me. I'm glad that you're able to join us. Cignam is an organization that I've sort of followed from afar and only recently gotten the chance to understand better. and I think there's maybe a little bit of a knowledge gap between sort of the American crypto industry and our European counterparts.

So hopefully we can close that gap today. Absolutely. Yes. It is true that obviously I've also been following your show with interest. And rightly so, there's lots going on in the US. But I think today hopefully I can contribute a little bit by, you know, also providing some insights what's happening in Europe, in Switzerland, but also in Singapore. Singapore, which I think is actually a lot.

And I think you guys in the US should follow that too. Well, here's to making a change to that. And hopefully by the end of this episode, on the brink listeners, we'll have a stellar understanding of the crypto banking environment in Singapore and Switzerland. Let's dive into it. So tell us about your pre-crypto career. Tell us about your career prior to starting Cignaum. Yeah, sure.

Just immediately before, I'm co-founding Cignaum, I managed a, a family office, a family office of an Indian industrialist, Rattan Tata, is India's largest conglomerate that he was heading. After stepping down as the chairman, he wanted to build an investment platform called R&T Associates. And I had already known him actually met him about 18 years ago and he became over time a mentor and friend. And later then my boss, because he had asked me to then come to Singapore, India and help him set up and grow R&T. associates. What we did is we invested in technology globally with a focus on, yeah, particularly Silicon Valley, India, Singapore, China, VCP deals also in also in blockchain

companies. And what is really, what was really interesting for me is that as a Swiss, and you know maybe a little bit the Swiss, rather risk a worse, right? People are well off in general. So I really learned the Indian Jugaat way, Jigard means to be to be able to handle ambiguity, to always find ways to get to a solution and also to take risks and that both data as well as got equally important when taking positions. So ultimately, I would even say that he is a key reason why I then later became an entrepreneur. And before that was with Bain as a management consultant focusing on tech companies and private equity funds and studied in Switzerland, London and the US.

I know everybody has their own story. You know, it's like every crypto podcast we're all asked to repeat our own origin stories. But maybe just briefly, what was it about, you know, Bitcoin and digital assets that kind of caught your eye and led you down this path? Yeah, I think it's very important because that also led ultimately to then the founding of Thignum. So initially it was actually curiosity. It started in 2012 where actually my brother was looking at Bitcoin. coin from a much more technical level or standpoint than I ever did, right? For me, it was just the concept of transferring originals and not copies from me to you without

intermediaries. It was just very intriguing and I initially just really felt it's just a great human invention. But then really from 1415 it became more fundamental for me. It was because at that time, by that time I had a history of investing as a VC. I've seen all these, Geron Lanier called them siren servers, the very few companies which basically soak up all our data, monopolize it, then monetize it. And I was literally just looking for a way out, right, to take back control. And when Ethereum came out, the Ethereum White Paper, the ICO issuance, and then the whole emergence of the ICO movement, I started a bit of a libertarian phase. And I really love the idea of democratizing access to capital and also to have the opportunity to invest in opportunities early.

And it was also the time when I then met my co-founders. We ultimately then set up Cignaum. One is Luca, who actually is the legal brain behind setting up the Ethereum Foundation or more generally using foundations as a means of raising or launching decentralized products. protocols. The third co-founder, Manu, was a banker and techie in one person. And then the fourth Gerald, who brought in the institutional investor knowledge, but with equal curiosity. And hence, sort of, yeah, that was my way into the rapid hole started really in 2014, beginning 15. So I want to talk about Cignam, but maybe just because you mentioned it. So of course, Switzerland, home of some of these legal constructs, some of these wrappers around ICOs.

You've got Crypto Valley. You've got Zoug. Obviously, some of the biggest foundations are, as it pertains to kind of token assuances, and ICOs are based in Switzerland. What's your kind of current appraisal of that landscape? You know, obviously, Crypto Valley was incredibly hot in 2017. What's the state of affairs there today? Yeah, I really think it's alive and thriving in many ways. I would say the crypto valley was also very much the reason why ultimately Switzerland,

even from a political standpoint, took the stance to really, yeah, go all in. There was a federal council of Switzerland saying we want to build a, Switzerland should become a crypto nation, right, already years ago. And that also led to, or that also triggered the regulator being much more open than in many other jurisdictions to, to enable what, for example, we have built, we've become the first regulated digital asset bank globally where when Finland took that leap of faith in August 19, that is one such element which I feel would not have been possible without the Crypto Valley being in Switzerland

and the many foundations having, you know, being launched here, also the talent that has come to Switzerland for that very reason and continues to be there. And today we have a great mix. in Switzerland of companies at the infrastructure level, also more established players that have already launched in 2013 or between 13 and 17. So it's very much alive and thriving, and I think there's much to come. What is also interesting is it has led to now increasingly

also traditional financial players to dabble with it, right, and invest in it. We have various banks that now have already or will be launched, crypto offerings including actually cantonal banks which have made public capital banks is state or canton state controlled banks which is quite amazing which are making public statements that they're going to get into crypto wow so crypto Valley alive and well so Cignam tell tell us about why you evaluating the crypto landscape why you chose to co-found Cignam and you know I guess the

the problem that you are looking to solve. Fundamentally because some of the things I've mentioned before, we really wanted to find a way to provide more choice to people again and to provide more direct access to ownership and value. And in that sense, a way to take back control, particularly for data identities and yeah, to some extent, also freedom, right? And what we saw in 2017 after going through or, you know, the hype cycle, all the many ICOs in full swing was just great ideas,

a lot of talent flocking into the space. But sometimes the business models were just sometimes a bit detached from reality, let's put it this way. And not because in many cases because of any bad intentions, just the lack of understanding that maybe future has heritage, right? And that is also the heritage is equally important. And the heritage in the space that we then became active in is just a heritage of also regulatory frameworks, of investor protection, of anti-money laundering, anti-terrorism financing laws, which ultimately is good because it creates a level playing field to do fair business, which is good for society and for all of us to thrive. And what we basically want to do is to help bridge these two worlds.

before launching Cignaum, we wanted to, for example, launch a crypto fund, but institutional grade, and we realized we can't because there's no custody in place. We can never get it through an investment committee of a serious institutional investor. And so we came together and said, well, let's build a bank in two very strong financial hubs with strong regulators, no shortcuts, right, no arbitrage. And what was really cool for me personally was that it didn't feel like a whiteboard exercise. It was not like us coming together and ideating what can we do. At that point, it was actually during the 2017 Singapore FinTech Festival. It just felt like, okay, Cigna was needed. And so, yeah, since then, we've worked hard to get to where we are now.

The joint focus in terms of Zurich and Singapore was that the objective from the very start having that kind of split focus? Very much. So it is a very fundamental, it's actually very, very core, it is the very core of the company that we from the very beginning have set up two offices, teams across the two locations. It is one company. We want to have one cohesive team and culture. We feel it's an extremely strong link, right, to have Switzerland, many things being similar, right, to stability from a political standpoint, regulatory frameworks, etc. Then bringing together Switzerland, which stands for history of excellence in banking and Singapore for the promise of growth of Asia and bringing that

together and use these two as hubs to then further expand just felt right from the very beginning. And in addition, we also have then made sure that we had, for example, at the beginning, two co-founders were located in Switzerland, two in Singapore. And so it really felt we've built the whole thing with this in mind, down to the investor base, by the way, about 50% of our investors are from Singapore and about 50% from Switzerland. So it stays true till today. So Cignam is a, I guess maybe I would describe it as a kind of full service digital asset bank. Can you elaborate on sort of the various product lines, Cigham offers? Sure, Cignaum. We offer a regulated digital asset banking platform and with an all-in-one

account approach. We also are in Singapore, a licensed asset manager with focus on crypto products. And maybe I should just briefly say how we categorize or what we mean when we say digital assets. For us, it means three different categories. It's first selected cryptocurrencies, Bitcoin and Ethereum, et cetera, of course. Then stable coins, including our own digital Swiss franc, which we may touch upon later and also asset tokens. And ultimately, what we then from a product standpoint offer is we offer a fiat and crypto, Fiat and Fiat accounts, Fiat and crypto custody, we have a 24-7 trading platform for crypto, payment services for corporate banking-related activities, then lending, a lending business

and asset management services. Really that all in one account, a banking platform for digital assets. And in addition, we've built an in-house end-to-end tokenization solution called Designate. and when I say end to end, it includes the, actually Switzerland's first regulated security trading venue, Synex, which always with the goal to ultimately empower, particularly institutional investors, corporate, qualified private customers, but even other banks also to invest in crypto,

and more broadly the digital acid economy with complete trust. It's a lot about bringing trust to an industry where, In 2017, this was a lack of trust was a key inhibiting factor for more broader adoption. The very adoption that we now have entered the next phase of. So we've talked about banks servicing the crypto industry on this show before a fair amount. I mean, probably much more so than most other crypto podcasts. We, of course, talked with Alan Lane of Silvergate. They're kind of a traditional bank servicing the Fiat.

of the crypto business. We've also talked to Caitlin Long of Avanti and my former colleague David Kinitsky over at Cracken Financial. They're pursuing this really interesting kind of full reserve banking model under the Wyoming SPDI. It looks like Cignam, you're sort of less encumbered than a special purpose depository institution. You're kind of more able to operate as a traditional bank. Is that sort of a fair characterization? Yes. And at that point I really wanted to make in stress, right?

First of all, we were extremely happy when we learned and read about, for example, that the license is being granted just most recently in the U.S. That's exactly what it's needed. We need more such notes of trusted players which can help to also bring a more institutional demand on the other side, so to say. But it is true that Cignam is a fully licensed Swiss bank, and we can do exactly that pretty much. We can act like any other Swiss bank in terms of service offering. We don't have some of the restrictions that the institutions that you've mentioned before have,

both on the Fiat side and the digital asset side. And I think that's quite unique, unique. So tell us a little bit the kind of clients that you're targeting, and what you're enabling in terms of having that direct connectivity to the banking system as well as being kind of a custodian and a service provider for digital assets. What is the merit in sort of conjoining those two things? Yeah, so basically our focus is really on helping to bring about institutional adoption. So our target clients are non-retail, right?

We right now do not serve the retail segment. And I think that's important. We focus on institutional investors, qualified private. It's crypto foundations. It's brokers. It's also crypto exchanges. It's asset managers. It's family offices increasingly.

It's high net worth individuals and via or B2B offering also other banks. And we do this because we want to really help bring about that next level of adoption on the path towards, yeah, as we call it, future finance. And why do they work with a with a with a with a with a with a with a with a with a with a with a with a and and and and and and and crypto is because we are you can think of us as a technology company with a banking license and that banking license helps us to project trust and particularly for people that are managing third party money this is an important element right. It just helps take the boxes in terms of counterparty risk assessment in in in

terms of reporting, in terms of being sure that we have the right capital base to, et cetera, et cetera. In Switzerland, there's also insurance on a certain level of assets that you deposit with the bank. And all these elements make it a valuable value proposition. I presume it's only fiat deposits that are insured, though, right? Is that a fair way to put it? Yes, that's partially correct. So, yes, that's typical, which is true for all the Swiss banks, the same amount, that is the ESI Swiss insurance correct, yes. However, or crypto custody solution has also been vetted by large reinsurance companies to be insurable.

So if, for example, a large institutional investor wants to have these assets insured, we can do that. do you see any do you see a sort of a paradox or a contradiction in in re-intermediating digital assets or is that just a completely necessary phenomenon that has to occur for for sort of certain types of participants to be able to actually engage in the industry I really think it's a necessity for for us to get the next level of adoption as mentioned before because, you know, imagine you're an asset manager, you're a hedge fund manager, or even you're a family office and you're a manager managing the families, the principal's money, or whenever there's third-party money involved, you just need to, even from a fiduciary standpoint,

you're liable in some cases as well that you do a proper diligence on the counterparty and that the counterparty is audited, et cetera, right? The cybersecurity measures are in place. All of this is just a necessity. And what we see is that, particularly if you look at just the last three months, right, we see this convergence of on the one-hand side more regulatory clarity. Switzerland is a case in point, but also Singapore, certainly also the US increasingly, even though I think there's still some way to go, but also very positive signs,

even in Europe, with Germany, Luxembourg, on the one-hand side. But then you have also an increased, I feel at least clampdown on underemptial. regulated, still unregulated players, particularly when there's derivatives, financial products involved, which just for people managing third-party money, they can't take that risk, right? That one day, suddenly the withdrawals are locked and you cannot trade anymore. So that's where we feel both regulated and unregulated players are needed, maybe for different client segments. Yeah, that shift has been very clear this year.

as some of these offshore derivatives exchanges have taken serious blows. And at the same time, financial regulators seem to be clarifying their stance on digital assets. In terms of Switzerland and Singapore, maybe talk us through a little bit about the regulatory milestones there and what the state of the art is as far as crypto banking. or just more generally regulatory attitudes to the digital asset industry in both those locations? Sure. In Switzerland, I would characterize as a first mover in that sense, right? It started with the issuances of the protocols, the early, you know, Ethereum, Tesos, Cardano.

All the foundations are based in Switzerland, to just name a few. Obviously, the regulator had to figure out early then how to deal with this new phenomenon. And I think both the key proponents of the early crypto valley, including my co-founder, Luca and others, have done an excellent job in educating the regulators and also making them ready for what it was then to fast follow. Second was then, yeah, the crypto bank movement, so to say. We were the first bank to get a full-fledged banking license in Switzerland. This was a huge leap of faith for Finland, I'm sure, right? It's not something you do lightly.

Of course, coming in conjunction with very clear and rigid and clear guidelines when it comes to anti-money laundering, rules, etc. We have to fulfill each and every such regulatory framework as any other bank does. So there's no loopholes. There's no shortcuts. And now the next level is that just recently that Switzerland has passed a new DLT law, which will be enacted next year, which will also make the asset tokenization concept scalable and from a legal standpoint fully robust. In Singapore, I would call it rather a fast follower. but when it comes to fintechs in general for example

Singapore has always been very open for example it's the only country I know where in the central bank building you have a fintech hub for example I think it's around 40 yeah exactly it's quite it's quite amazing it's about 40% of the fintechs in south east asia are based in Singapore so it's a magnet for talent for funding again the stability that you have there

in non-COVID times also a hub for travel, right? People like living here. But when it comes to crypto, a bit less fast than maybe Switzerland. But just recently, you may have heard that the largest, Southeast Asia's largest bank that was a leak at that DBS, that they're launching a digital asset and crypto exchange. So it's also now coming. So they're a fast follower. And we're excited that this is happening. Yeah, I have been stunned by the developments over there.

But I guess it stands to reason. I mean, it's very much on-brand for both Switzerland and Singapore to be actively pursuing the kind of crypto industry. I mean, those are havens for banking and finance. I mean, especially as Hong Kong becomes more questionable as a jurisdiction. I can't really think of two more suitable locations to be on the vanguard of this sort of new, financial movement. So it certainly makes sense to me that the regulators are being proactive there. Yeah.

And you know, maybe just to add on Switzerland, you know, the political system, it's direct democracy, it's federalism, it's deciding at the smallest possible kind of unit, village, what is possible. And then at the continental state level, and then at the government level, what you can and what makes sense, subsidiarity principle. this is all very much lends itself, right, to the very thought, at the very core of the decentralization movement, of open source, of creating ledgers, basically. And hence, I think it's not a surprise and no coincidence that Switzerland is so proactive in this regard. So one topic that certainly has received some attention in the West as it pertains to Switzerland would be their implementation of the so-called travel rule.

definitely had to touch on this. So maybe clarify this if I, if I misunderstand. But my best understanding is that if you are transacting with a kind of virtual asset service provider, you have to prove ownership of a non-custodial wallet that you're using to make a deposit, both when you're depositing and you're withdrawing. and I believe this is kind of a standard that would be more kind of onerous than the equivalent standard in other jurisdictions. Is that kind of the appropriate characterization there? I don't know whether it's more onerous than what would be effect traded once you would have full regulatory clarity in other jurisdictions.

Maybe that would be my first statement. But what it certainly is, it is very strictly following the FATF guideline. when it comes to KYC, KYCing the, or basically making sure that the transaction monitoring that you have to do as a bank, as a regulated financial institution, can be performed also in the crypto industry. And I would obviously lie if I said it was not a huge challenge for us to deal with it, right? We've invested significant money in creating actually a tool, we call it crypto AML tool, where with various workflows and also interaction tools with the customer to make sure, We can still smoothen out the customer user experience as much as possible.

But it is indeed a bit of a step to make your digital assets, your crypto bankable. But I wouldn't say it's significantly tougher than other jurisdictions, particularly once they then have the same clarity. And maybe last point here I would make is, you know, imagine in 2019 when they gave out, you know, a banking license. It was also the year when Libra came out. Libera, as you know, is also based as a big base in Switzerland and going through a regulatory process in Switzerland. So there's also a lot of pressure, international pressure, I can imagine, including, and in particular from the US, that everything goes right, right, and there's no loopholes. So I think that also contributed

to that. Singapore also was one of the first jurisdictions to ask VASPs. in Singapore to comply with the Fadoff's travel rule. Is that right? Yes. I don't know whether it's one of the first, but it certainly does. Yes. And I guess it'll be ubiquitous eventually is kind of your view. Just that there's different kind of paces from the various financial regulators.

Exactly. I think the moment a regulator of a certain country wants to really end-to-end regulate or clarify how to deal with cryptocurrencies and making them bankable, then if they're part of the FATF member country, for example, then they will have to. I don't see any other way. Maybe at some point there will be ways of optimizing these rules in a consortium of many countries together or via FATF to make it a bit more easy,

but this is probably going to be a very lengthy process. And before we get there, more such rules in other countries will be implemented. So moving our perspective slightly outside of Switzerland to the EU, you touched recently, or you mentioned Germany and Luxembourg, as places where there have been kind of favorable developments with regards to digital assets. Talk us through a little bit through the EU's stance. And I believe there's a new legislation called MICA. I'm not exactly sure what it stands for.

What is happening in the EU as it retains to sort of the digital asset industry? Yeah, first I would say that as of today, it is still a bit of a patchwork of different regulatory regimes in Europe. And quite frankly, for us, as we are obviously also eyeing how it can be best from our two hops, internationalize or increase our geographical standards, footprint. in Europe and Asia, it makes it a bit tough. So what I can say is that in Germany, for example, they have recently introduced a new licensing requirement for crypto custodians. So it's a very specific license for crypto custodians, but then that's it.

You can't do anything else. You can't then at brokerage, for example. There's yet another license for that, and it's a bit unclear. So I think they're still, in my view, figuring it out a bit. And then in Luxembourg, Luxembourg has introduced a registration requirement for VASPS, for AML supervision and enforcement purposes, I think that's pretty good and quite in a positive sense, a lean setup. But overall, the different regulatory approaches,

they do impede scalability across Europe, right? And hence, the goal of BICA is a harmonization of the European framework to streamline DLT and crypto-regulial. and it's it's on its way. I do feel, you know, once it's done, then there will be the so-called European passporting enabled so that if you do it, get the license in one of the EU countries, you can then apply the same across all the EU member states. But this will probably take some time.

When you set up Cignam, were you expecting regulators to grapple with the technology at this pace? or has it actually disappointed you in terms of how long it's taken? That's a good question. I would say I would differentiate between the crypto side and then the asset tokenization. On the crypto side, I feel particularly the countries that we are active in from now, Switzerland, Singapore, it's been quite as we've expected. And otherwise, I mean, you know, when we set up and said, look, we're going to get a banking license in Switzerland, and 90% of the people would have told me, you're crazy,

you will never get a license in this new industry, forget it. But we made it, and FINMA was as forward-looking. But when it comes to asset tokenization, I must say I have underestimated how long it will take for countries to put in place reasonable legal frameworks and DLT laws that tokenization really can take off. It took much longer than I thought. Or it is taking longer than I thought, yeah.

That's certainly something that we feel here in the U.S. with regards to tokenization as well. There's some really significant barriers, namely the presence of venues where tokenize securities, for instance, can actually be traded. So certainly feeling that here in the U.S. Changing tack a little bit. So you mentioned stable coins. That's obviously one of the big phenomena of 2020. is stable coins, I think as of today, are cresting $22 billion in sort of aggregate capitalization. With Tether being the largest, I think USDC is the second largest.

The most popular model is the Fiat convertible model, but the issuers of these things are using commercial banks to hold the reserves or to hold, I guess you could say they're not necessarily fully reserved because commercial banks don't, you know, literally hold dollars on deposit. Talk me through about your approach to a stable coin and sort of how that's different from the sort of the standard Fiat convertible model. Sure. First, I would like to say we initially didn't plan to issue a digital Swiss frack DCHF ourselves. But we had to because we, again, for the same topic that we've just discussed, timing, right?

we thought probably the evolution of the market would be a bit faster than it turned out to be. And hence, we were almost forced to do that in order to reap the full benefits of tokenization, right? That we can have delivery versus payment, that we can pay out dividends on all the other performed corporate actions involving fiat or the digital version of it in our wallets for shareholders, for example, and hence we set out to do it. So this is as an initial remark. It was not kind of something that we also wanted to build. But now we're proud of it because what it does is DCHF is issued by us. But for every digital Swiss franc we mint, there is one Swiss franc actually held in our account that we have with the Swiss National Bank. So as a bank, we are allowed to actually have to have an account with the Swiss National Bank.

And so for every such coin, we can then have a real. so-called fiat coin is then blocked in our account with the national bank and as such you're as close as you can get to the source of it right of course we do not mint money in the sense that we increase the monetary supply of the CHF obviously neither the regulator nor the national bank would have let us do that but it's a nice way of of creating that that trust right because it's truly collateralized yeah so this is tokenized base money effective Yes, exactly, yes, but just not increasing the base, yeah, exactly. Right. I don't believe that there is another instance of that, that I'm aware of, at least.

I'm also not aware of any. Yeah, I was shocked when I first heard about this. I mean, at this point, we're kind of blurring the lines between, you know, tokenized fiat, stable coins, and central bank digital currency. It seems that there's kind of a convergence happening. Yeah, how should I put it? I'm not sure it's a convergence because, you know, once a national bank really issues a stable coin and then also starts managing monetary supply with it and how the whole, then also it obviously depends whether the central bank issue coin will be just for commercial bank distribution or then actually going down to the individual. but that will then be the true game changer in that sense from a monetary policy standpoint.

But what we are doing is just increasing the level of certainty for people using that stable coin that they can trust that we're not inflating the supply of the coin vis-a-vis the actual underlying. And we do that by A, you know, having audits that, A, by being a bank, and hence it comes, comes with lots of audits and secondly by making sure technically and procedurally that for every DCHF there's one block with the national bank, now we're a con with the national bank. And mechanically, the DCHF, does that exist as a token on a public blockchain? Yes, we believe in public blockchains. We work with Ethereum. Of course, due to regulatory and to ensure that we can follow all the rules and regulatory frameworks,

we do have certain features that we've added in smart contract. For example, there's a white labeling feature. There's other compliance features that we've added to make sure we can comply with all the rules. So you're kind of on the cutting edge of stable coins from an institutional perspective in terms of creating a technology, trusted and credible what do you make of the growth of stable coins I mean where do you think it's taking us is it just an intermediate step and then maybe in the future we're gonna be using something like Libra or even CBDCs

or is it enduring what what do you believe the stable coin element of the industry where is that taking us I mean that's a that's a good question and if you know it, tell me, because I'm thinking about this a lot. And quite frankly, it's a different, it's a really difficult question. But one thing I would say is first that I do, some people have posited that the moment central blanks are starting issuing coins, then then this will be an issue for, for, for, will bring crypto down, for example, right? That has been sometimes a hypothesis. I could not disagree more. I think it's a completely different use. case, it's useful. There's a different purpose, and hence, I think I'm convinced this will go hand in hand.

I also am convinced, secondly, that a number of central banks are following through and will over the next few years, but again, caveat, it will take time until this will get into production. For example, in Singapore, Project Ubin, which has been quite at the forefront, I think it's been going on for four years or so already, right? So they've started very early. but it will still take time until they put it in production. And I also understand why. So that is the second thing. I believe it's coming, but it will take time.

But many will only do it. And that's what some people also sometimes misunderstand. Some will just distribute these coins to commercial banks. They will not kind of allow individual citizens to then have access to a wallet directly at the national bank, which basically will completely disintermediate. banks, right? I don't think that this is going to happen in the short to medium term. Right. Yeah, the utility, the retail versus kind of utility model for CBDCs is fascinating to me. I mean, do you see a distinction between merely distributing central bank digital currency to

commercial banks and then having them be the intermediary? What would be the difference between that model and the kind of current model? that we have for banking. One of the things that would happen in my view is that it just is a much more granular and cleaner way of steering, even cleaner way of steering monetary policy, right? For example, if you look at what China is doing or is planning, it basically means that you can at any point have completely complete control what happens with each individual coin or currency unit, right, down to what has happened.

happened with this currency unit at that point in time, how much of that transaction value will have to go into taxes, et cetera. So it will just, it will really create an increased mechanism or increase the, the toolbox for central banks to control what happens with their, with the currency, right? But then if you then add the cross-border element to it, even more, because then then center blanks could coordinate how much or maybe even which subsets of currency of the currency coins can be exchanged with other other currencies versus not etc you could you can go wild with what you could do with that because ultimately you can program that money so what really will

happen this is a huge economic exercise and experiment and hence I think hence they will also take time until they roll it out so on a completely different topic. We are recording this on a day. Probably by the time we released the episode, this will be completely out of date. But currently Bitcoin is sort of creeping up towards a new all-time high. This has been a pretty staggering rally, you know, the kind of 3,000 range in March, almost a new all-time highs now. What are you seeing in your corner of the market that would explain the price action this year? To what features do you sort of attribute this rally and this enthusiasm?

Well, there's a number. And I think first, I do feel that the macro environment is leading very fundamentally to many more people asking fundamental questions, right? And these questions could be, how can we go on like this? What does supply and demand mean in today's Fiat system with the quantitative easing that is going on? If I'm not mistaken, the U.S. alone printed more. US dollar in June this year than in the first 200 years of its existence.

Amazing. So that is a kind of, yeah, that's kind of, I think it really staggering stats. How should I invest or build and protect my wealth in such an environment? I can see empirically, but also more broadly following, you know, the tweets and the discussions and the various mediums. This is kind of what has happened this year, very fundamentally. Then secondly, what I also feel that COVID-Separd. specifically has led to a state where we all suddenly are much more conscious about where we are

and whom we are with at any point in time and that that really matters. And also that the world can change very fast. So many people have been procrastinating about things, you know, do I really have to digitize? Does it make sense to go on a hope on a Zoom call versus travel somewhere? All these questions have been just had to be answered and that has led to a situation. And I, I truly see that in interactions with prospects and clients, where people are much more open for new things and also they decide faster and with more conviction. Because tomorrow things could be different, right? So I truly believe that this is an element that has significantly contributed to the price action. But in addition, particularly in the case of Bitcoin, I do feel that we're just in that next phase of moving from risk asset to new digital gold.

I personally am a believer in that, that it's a superior store of value than gold, particularly when we consider the generational shift and what the future and generations perceive as value. And also, I feel what we're seeing right now is just the very beginning. One thing that I look at is the correlation between the real interest rate, at least in the U.S., and Bitcoin. So if you look at gold, it often tracks very closely the sort of inflation-adjusted 10-year treasury price. Bitcoin was actually doing this to a certain degree earlier this year. And, you know, I saw analysts commenting that, you know, Bitcoin wasn't even strictly speaking about on inflation. It was a bet on negative interest rates because, of course, the deeper

a negative interest rate goes, the better a zero-yield asset looks. And Bitcoin is a zero-yield. yield, but it can't have a negative yield, so it looks more attractive by comparison. But then interestingly, this correlation broke down as the sort of generic yield started to improve a little bit in this country, and gold started to give back some of its gains while Bitcoin continued to rally. So that was very encouraging to me. I don't know what you thought of that, But it was encouraging to me the Bitcoin had stopped behaving so much like gold. And it seems to still be undergoing this kind of secular monetization where it's a bet on real rates, but it's also just fundamentally a growth asset.

It's sort of two things at one time. Is that kind of how you think about it, too? Very much. You could not have summarized it better. Absolutely. But what I do feel it is, it is, why is that happening? why is that pattern changing? I really think it's a bit, and I know it's, that's not data driven,

but I do feel it's this, the macro environment and the very fundamental shift psychologically and how people think about the world and how the future will look like has certainly propelled that. And if you compare it to 2017, as you very much are aware, the why, who and how is, is very different. The why we've discussed, why the price, rallied who it's not retail anymore if you look at the the bitcoin google key search numbers it's about 10 15% of what it was in 2007 to 2017 hype so it's not it's not retail driving what's

happening it's it's more institutional investors it's even treasurers a hedge fund big hedge funds etc that are you know seeing this as a as a growth asset and as a as a hedge and as a store of value And then in terms of how, it's because we have much more infrastructure in place. We have the pipes that are now there that even a billion dollar or a multi-billion dollar fund can say, okay, I can allocate one, two, three percent of my AOM to this asset class because I can stand in front of the investment committee and my clients and say, I did the checks. I have the counterparty risk under control because I can work with banks, with very solid, audience to get exposure to the ask cause. I think that's the huge change from 2017. And it's organizations like yours that are actively driving that change. That's one of the things that's so exciting to me. And I completely agree with you. It does feel materially different.

Matthias, how would you recommend that people follow you and follow Cignam? There's various ways, you know, on wwwsignum.com. You can follow us on, you can follow us on or join our newsletter. We have your option on social, LinkedIn, Twitter. You can also just look me up and email me. I would be happy to engage. And I think if you want to check out our platform, of course, you can onboard with us in 15 minutes.

It's easy and fully digital. And that's Cignam with a Y. Yes, it's S-Y-G-N-U-M.com. Thanks so much for coming on. It's been a pleasure today. hopefully we can celebrate with a new all-time high shortly, probably by the time this is released. We'll be sitting comfortably at a new all-time high. Thanks again for coming on the show. Thanks so much, Nick Fahle.