On The Brink with Castle Island - Sal Ternullo (KPMG) on Enterprise Adoption of Cryptoassets

Episode Date: April 20, 2020

Sal Ternullo, Director and Cryptoasset Services Co-Lead at KPMG joins the show. In this episode we discuss: KPMG's cryptoasset practice and the types of engagements they are leading for large enterprises Sal's views on cryptoassets and security tokens including barriers to adoption for enterprises The outlook for M&A activity in this industry Learn more about KPMG's cryptoasset practice here.

This week's episode is brought to you by Zen Ledger, one of our portfolio companies, actually. Zen Ledger is the best software to get your crypto taxes done fast and easy. They have friendly customer service by phone, email, or chat, and it's the easiest place to get your crypto taxes done. If you use a CPA, you can invite them and they can be part of your process. You can also do tax loss harvesting or get a full audit report. And as a special offer for our listeners, you can use the coupon code Castle 15 to get 15% off. That's Zenledger. I. Go check it out. Today's episode is with Sal Turnullo. Sal is the director and co-lead of the

crypto asset services practice at KPMG. I wanted to have Sal on the podcast because KPMG is doing some really interesting work at the intersection of regulated financial services in public blockchains. So in a world where most of the big four audit and accounting firms, and actually most of the major strategy consulting firms are focusing on private chains, KPMG is putting out some thought leadership and actually working on real engagements with companies that are looking at public blockchains. And clearly this is a more disruptive opportunity. So they have a big focus on custody as a foundational layer.

And we talked about that in this episode. We also talked about the types of client engagements that they undertake and Sal's point of view on what it takes to push forward a blockchain project from within a large enterprise. I enjoyed this one. I think you will too. So without further ado, here's our episode with Sal, Trinolo. 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 Concentuteease. You print a couple trillion dollars, and all of a sudden, people start to worry. So out of this worry, we have something called a Bitcoin. Sal, thanks so much for joining the podcast. Awesome.

Thanks for having me, Matt. Appreciate it. I guess it would be strange to start a podcast in this climate without just asking you how the lockdown is going for you. What's the impact been just on your personal life and then your professional life? Yeah, I appreciate it. On a personal basis, we're learning to live with a new norm. I'm starting to develop what I'd say, a stronger routine and starting to appreciate

little pieces of life that I didn't get to appreciate as much while I was on the road. Obviously, there's a lot of differences, but my family and friends are safe and healthy for the most part, so I feel fortunate in that regard. From a professional perspective, it's obviously been a substantial change. I think consultants like myself and our team are often on the road, and that's not the case anymore. So we've really been dynamic in how we work and engage the team. I think the virtual collaboration has been a critical part of our success over the last seven to eight weeks of lockdown now. And I think from a market perspective and business viewpoint, we've been very successful working virtually and remote. And I think probably lays the

foundation for discussions around what the return to work and new norm look like as we move into a world where we prove business models in a virtual or remote fashion. So it's been an interesting period of time. Definitely. How about yourself? You doing all family, friends, safe. Yeah, we're adjusting. It's kind of weird. You realize that maybe you don't need the office as much as you thought you did, who've been able to get a lot of work done. I think it's been, I've never used Zoom as much as I'm using it. So that's been good. I have a kind of a set up here with a nice, well, no background, I guess, but been adapting to that. I think the lack of meeting people in person has been kind of a challenge. It's going to be interesting, I think, from the venture

perspective, how many deals actually get done over the next few months. I think you're going to see a lot of deals announced that happened before the diligence was happening before, but not being able to sit down for a meal with an entrepreneur or a coffee and look into their eyes and get a sense of who they are as a person. That's interesting. That's going to be different. I've been doing Zoom happy hours with certain entrepreneurs trying to get to know them better. But it's just, it's a weird time. It's a really weird time. It's interesting that you say that. Obviously, the personal element is so important in our business being a client facing services business as well. But I think a lot of times for us, it's advantageous in that it's not a new team and new engagement

and new relationship every time. In many places and circumstances, we've developed pretty robust foundations, either at client level or with regards to specific engagements. So there's a broader foundation. It's not new every time. With that said, the personal piece is something I dearly miss as well and can appreciate why from a VC side,

it's a big impact. Totally. Well, it's a shame that we can't do this in person, but I am glad that we're doing it over Zoom. And you're a Boston guy, So there's a lot of Boston connectivity in the crypto industry. And I am really excited to hear more about what KPMG is working on, and some of the work that you're driving there.

KPMG is, of course, a big four auditing firm and consulting firm. And probably the furthest long, in my opinion, in terms of just pushing forward on public blockchains. So I want to get into all of that. But maybe before we do, could you just set the table a little bit, give us your introduction, your professional history? How the heck did you get into the current role? Yeah, absolutely. Thanks, Matt. My journey in crypto started in college in 2012 and 13 while I was at Bentley

and kind of laid the foundation for a deep passion and interest in technology that was a little different from my core studies and finance and accounting that carried over to position me in a technology audit role when I started my career at State Street. I quickly expanded from there to look at things like cloud and pressing or relevant emerging technologies to State Street's business, looking at primarily robotics process automation, cloud migration. And then in the later part of my time at State Street, really focusing on distributed ledger technologies in the permission context. So we were building a lot on hyperledger fabric. We were looking at how to build continuous monitoring and auditability through audit nodes on these types of networks and really coming at it from

an enterprise risk security and audit angle and tacking on to some of the innovation work that was going on across the firm. Through that time, I continued my passion on kind of the crypto-native space. And by 2017, 2018, I was pretty steadfast in my personal view that permissionless networks would become the foundational infrastructure that all sorts of different polychain environments would evolve on top of and likely interoperator cross. So as my time at Stage Street came to a close, I looked to the market and said, where do I want to go next? I was pretty sure it was consulting. So interviewed with a number of the big four and competitive consulting firms. And at the time in 2018, KPMG was the only firm that had taken crypto as a

strategic crypto-first mentality. It was very much so a services business designed to cater to the crypto ecosystem versus consulting businesses geared towards building permission blockchain solutions in the enterprise context. Not to say that we weren't focusing on that as well, but we had a dedicated effort to crypto. So came on board with KPMG in 2018 in the summer, had the fortune of joining Sam Winer, who's the co-lead of all things crypto at KPMG. And since then, we've developed, And I think we'll talk a little bit today about what we're doing in the market and the services and solutions we're building. But we've been very successful on leveraging that first mover advantage from the service perspective in the crypto space to translate experiences and unique perspectives into the institutional market as it started to blossom over the last 18 months. So at KPMG, again, it's a large consulting firm.

We do a lot of different things. But I think that gives a pretty good context and background on my journey and the role that I have here. That's an awesome background. I'm going to risk taking us off topic for a second. You went to Bentley. My sister went to Bentley. And I remember this was probably right around the same time, maybe you graduated. So Larry Lukino, the president of the Red Sox, was making a commencement speech and got heckled at this commencement speech.

Someone stood up and said trade Josh Beckett, just an all-time moment in Bentley history for me. So I really liked it. But the other Bentley thing is I guess you were pretty active. You told me in a past conversation, you were pretty active in mining crypto. during your college years. Was that how you got into the space originally? My original deep dives were inspired by Reddit and other engagements in purchasing and utilizing Bitcoin and then ultimately started to dive deeper and deeper and that's where kind of the mining experience began. So it started super, super early. We were never really good at what we did. But from a sophistication

perspective at that time in the market, we had a good understanding of what we were doing. I think that was right around the explosion in terms of innovation with regards to A6 and kind of the, what I would call institutionalization of the mining space, and quickly kind of ran our road with that, but laid the foundation for, I think, a learning journey that very much so enabled me to be where I am today, meant to kind of have a holistic experience from the tech all the way through kind of macroeconomic and socioeconomic change that may result from all these different technologies converging. That's an interesting perspective. One of the things that's been really interesting for my personal journey in the space is just the various narratives and what you can

get excited about at various times. And so when I first started, it was all Bitcoin and I was just trying to figure it out initially actually from a software perspective. I don't think at the time that I started getting excited about Bitcoin, I had a good understanding of sound money and Austrian economics and computer science, certainly. Over time, I started to get really excited about some of these enterprise use cases, which later became kind of these private blockchain use cases. And I initially, I confess, I thought that there was something there for a while. There was a time when I was working at Fidelity where I really thought that some of these things were going to be put into production. And over time, I came back to the public chains, really being where all the action is and maybe we'll have private layers built on top of public chains.

But now there's just so many more categories. If I think back to when I started, there might have just been public and private and it was Bitcoin versus R3 or something. But now you have DFI, you have enterprise use cases, you have privacy coins. there's just so much going on. So what are you the most excited about? And are there pockets of this industry that you spend more time on versus others? Yeah, absolutely. I think to your point, it's very much so a polychain world nowadays. I think from a tech perspective, eventually we'll see convergence across core features that drive differentiation on layer one protocols and even in subcontexts looking at layer zero. But from our business perspective with regards to kind of the permissionless

crypto ecosystem. It's very much so focused on custody. Custody has been an area of discussion for more than two, three years now, but the innovation that's happening today and the placement of new products and capabilities in the market is what's really exciting for us. So we've been active in custody space from a risk security kind of auditability and attestation perspective for a long time. I think we started in 2016 with an early exchange. But now we're really focused on actually incubating and integrating third-party technology providers, specifically in the MPC space, to unlock new opportunities for either asset expansion or the development of more centralized institutional finance applications enabled by tokenized assets and MPC.

Got it. That makes sense. So before we kind of dig into some of these custody questions, which I want to ask a bunch of questions about, maybe let's just set the table for folks that might not be as familiar about KPMG. I think it's super refreshing. to see a big four firm focusing on public blockchains, especially versus some of your competitors that are kind of thinking that private chains are going to be the dominant force here. So how did this business actually get started? What was the impetus to see opportunities with public chains? And maybe dovetailing on that without talking about specific customer names,

what's a typical engagement look like for KPMG, for those that might not be familiar with how you actually do work? I'm happy to dive a little bit deeper into the background. So I mentioned Sam Weiner previously, still co-leads all the work here, really was kind of the driver of all things crypto at KPMG from 2016 on. So very, very early opportunities with exchanges that honestly came through personal networks and former employees that moved from technology, risk, and security type services into a more crypto-native business. And then subsequently created channels for us to have relationships and help those organizations mature their businesses to, scale to do so in a regulatory compliant way, filing for different licenses on a state-by-state level, going through the bit license process, building out enterprise risk management programs and security protocols, and making sure that these organizations are prepared for third-party attestations

that increasingly now are required by institutional engagement in the space. So very much so deployment of traditional services from the KPMG viewpoint, how do you prepare for SOC attestation reporting, how do you build out a control environment, how do you design an operating model to be advantageous across jurisdictional differences in regulatory treatment of assets? And these are all things that KPMG is very well suited to do. So really leveraging our core expertise to deploy into the crypto space. And then in doing so, having this very, very unique and early viewpoint to see how the business has evolved. So I credit the team prior to my time for laying the foundation. And I think Sam and Karen, his former teammate, was very important in doing that. Where we stand today now,

it's very much so focused on the incubation and integration of digital asset and crypto capabilities more so than just looking at traditional service deployment. So I think that covers the first part of your question. The last piece in terms of a typical engagement for folks that are unfamiliar, it's largely consulting-centric work, but in partnership with product companies to implement technology and target client environments. That's awesome. And so one of the things that you guys have been great about is putting out white papers. So you recently put out a white paper on crypto asset custody. You talked about some of the considerations that enterprises would face as they were facing whether or not to build one of these things, whether or not to buy. So maybe just generally,

what's your point of view on this custody opportunity and maybe talk about some of the challenges as well? Yeah, absolutely. So I think when you look at the reason we start with custody, when you step back and look at what it takes to engage in these permissionless networks from an institutional or retail perspective, everything begins with custody. And the nature of the custody function for a permissionless network has a unique risk profile because these permissionless networks have no central authorities and no asset recovery mechanisms should an entree and transaction be executed using a private key. So this whole idea of protecting private key material and doing so in a way that guarantees security through a robust environment of preventative controls, both technical and

operational, as well as the implementation of insurance policies and all those types of controls, is paramount to engagement in the space. And I think that custody piece was really the foundation of thinking in terms of what a forward-looking institutional banking stack might look like for crypto and digital assets. But for organizations that are early movers and kind of have already developed capabilities internally. They've done so in parallel to a rapid commoditization of technology in the space. And now you're starting to see these very mature product companies provide features and capabilities, both in terms of hardware and software, that aren't native to the institutions that move first. Do you think the custody is going to look fundamentally different from the way

custody works in traditional markets? If you just take financial services, there's probably five or six kind of global custodians that dominate in the RIA custody landscape. It's probably even fewer companies. So if you were starting a brokerage, you probably wouldn't also start a custodial firm, but maybe crypto is a little bit different in the sense that you could imagine that being a huge competitive advantage, maybe even a core competency for anyone that wants to offer crypto. So how are people thinking about this? Is it like, hey, let's just wait for Brown Brothers and Boney to add custody and then we'll outsource? Or is this a core competency that anyone entering the space needs to be thinking about? Our viewpoint is absolutely that this is a

core competency and the idea of custody in crypto or digital assets extends far beyond the construct of RIA custody in traditional institutional markets. When we talk about custody for crypto and digital assets, we're talking about a technical capability and core function that's required to engage in tokenized assets, irregardless of whether it's hosted on a permissionless blockchain or if you're looking at a stable coin or CBDC, a central bank digital currency. So from our viewpoint, this idea of custody, it's transformative in the institutional financial services context in that it drives this massive change in how organizations do business, but it also presents a strategic opportunity for organizations outside of traditional financial services institutions to adopt wallet infrastructure

and tokenized payments to engage with either true payment rails or just leverage that infrastructure to support some type of business process that engages with a different tokenized asset. And again, this is a core capability. It's extensible across industry segments. It's just very much so focused on in the context of financial services, given the regulatory scrutiny compliance requirements and frankly, security for institutional capital at scale. Yeah, it's interesting to hear it friend that way. Stablecoins is something that's going to be fascinating to watch because I think if you, if you just view this through the context of Bitcoin, maybe the addressable market of institutions that want to add custodial services is a little bit smaller.

But stablecoin is a whole different thing. And you see massive uptick in USDC usage over the past few weeks. I think what we're probably seeing here, if I had to guess, and Nick has done a lot more writing on this, is that we're seeing dollarization event here, where the US dollar is really strong right now, becoming stronger. It's the global reserve asset.

I think you're going to see people in jurisdictions that previously didn't have access to U.S. banking be able to on ramp on. a mobile wallet with a stable coin in a really unique way. And you're going to see institutions start to pop up to service these stable coins. It's basically a money movement capability. So my thesis is that this actually might be the impetus to just get a bunch of this infrastructure rolled out at the enterprise level. I'm curious if you would agree with that. It is in many ways. And it depends on the organizational strategy and what you're pursuing

from a business perspective. Every organization is unique in that regard. But at the end of the day, regardless of the road that you take to engage with crypto and digital assets, if you're going to bring the capability in-house and realize all the operational efficiencies and overhead cost reductions that are possible through engagement in these types of rails, it's very much so in organization's interest to start with custody. Building a dynamic and extensible custody architecture across dedicated physical appliances and hardware security modules that are truly air-gapped, offline, network segmented and integrating into a tiered architecture from there that may or may not implement threshold signing or multi-party computation to guarantee security of network-connected areas.

It's a foundational architecture that you can then apply in the future and is a sound investment in terms of capability set that will drive value regardless of kind of the strategic direction that your business takes. As long as you foresee a future in which you're going to be accepting payments in the context of your business and expect dollars or U.S. tokenized dollar, to be part of that context, this type of infrastructure can extend. Should you later pivot and want to engage in a permissionless context and run business applications on Ethereum and hold Ethereum, you could do that as well with the same infrastructure. That's interesting.

So within the context of custody, there are a lot of different implementation considerations. And there's actually a fairly robust debate between those who believe in on-chain multi-sig versus MPC. And without getting too much into the technical weeds, I'm curious, you're point of view on, is this a settled argument? Is this something that firms like KPMG will need to take a definitive stance on in terms of one versus the other, or maybe there are even others that should be in the consideration set? So how do you think about just how to implement some of these? This is new cryptography, right? Like these crypto assets are only 11 years old. So there's a lot

of open questions just on how to implement some of these systems. Fully agreed. And I think the first question that you framed around whether or not there was a clear decision made in the industry, I would say that that's not the case. The case is that every organization in terms of their business objectives is different. And some are willing to take on a higher risk profile to adopt early emergent technologies that through their own prospective due diligence processes and review of peer literature and assessment have determined the efficacy and integrity of the technology and underlying algorithms. But with that being said, to your point, I think there's going to continue to be a strong

cultural debate around the right approach from a security perspective for keys. I think that's very evident in the institutional landscape where hardware is absolutely mandated by culture and in some cases increasingly by regulatory expectation. I think that across the architecture, there are opportunities to deploy layered preventative controls, which may or may not integrate multi-sig architectures with underlying MPC solutions and dedicated hardware into the most robust security model that you can build while still guaranteeing availability and performance to meet your asset owner or manager's requirements. And are you pretty bullish on PC? I know that this is really kind of the bleeding edge right now

in the industry. Are you seeing a lot of uptick with that? And that's multi-party computation for those who might not be familiar. Yeah. Yeah. So we've seen a pretty robust discussion around the MPC space. And I think an increasing recognition that the maturation of multi-party computation cryptography provides a very substantive opportunity to progress custody capabilities, both in terms of the security model potentially, right, still being proven in the market, but absolutely with regards to the ability to support more dynamic asset onboarding, looking at decentralized finance applications or breaking staking minimums using MPC solutions to build DFI type applications, but for the institutional landscape, right? So think about syndicated loans using

key shares instead of a traditional loan syndicated loan execution process. And you could have the potential to have dynamic onboarding and offboarding into pooled lending products that would be far more efficient and just frankly not possible in today's kind of product ecosystem. So I think to your point, it's still in the early days, but we are super excited about the MPC space and see a lot of opportunity for MPC to augment and optimize existing custody solutions. And to provide new business value and revenue opportunities. That makes sense. I wonder how much of the consideration set from just a security and an architecture standpoint depends on what the actual underlying asset is. I mean, you could see with a bearer asset like Bitcoin that can be hacked and moved and you're not

going to be having the ability to get that back per se versus a syndicated loan, which represents a loan that's out to a company. So if, for instance, one of the custodians were to be compromised in a situation like that, it's not like they're going to walk away with the entire loan. It's not a censorship-resistant bearer asset. There will be steps that can be taken to remediate that if it is an actual security. So does that play into the design considerations? Would there be a different setup for something like Bitcoin versus a security token? Totally, totally. So MPC is extensible to be applied across different types of architecture. So in leading MPC solutions today, there's even and the promise of asynchronous signing,

where you can have an MPC key share required in a quorum, but stored offline. And then subsequently, when that key share sinks to the network with a signature, the actual process is executed, which kind of gives you the idea that MPC can be implemented across a cold, warm, hot storage architecture. And depending on the risk profile of the network

and the asset that you're engaging with and securing, whether it be on a permission network where there is an asset recovery mechanism versus a permission list network where there is no central authority, you absolutely would design the custody, the application of the MPC cryptography in a different way. You may be totally cool with all software-based implementations specifically looking at Quorum. Unbound tech is now part of the quorum reference architecture. So you're starting to see in the permission context the MPC application as well, but again,

designed in a different security model depending on the asset. That makes sense. So within that security token framework, it's been interesting to see this market evolve. I think a lot of the ideas that are manifest with security tokens were originally sort of proposed under private blockchains back in 2015-16. There's been a slowness to develop there. My hunch is that it has to do with the fact that there are a bunch of regulatory barriers around the definition of custody for a security token for a cryptographically secured asset. Because of that, we haven't seen a lot of quote-unquote quality issuance. You tend to see kind of startups that are trying to issue certain instruments, preferred equity on a blockchain,

you seek some corporate bonds here and there, like overstock did something. Are there meaningful kind of barriers that you're monitoring that would throw more enterprises into the game quicker on the security token front? Yeah, so I think you frame the problem statement very well in how you set this up, because at the end of the day, I think a lot of the impediments towards realization of security tokenization, specifically in the real estate context, has been around the regulatory environment. and how do you fractionalize the ownership of an asset and comply with town, municipal, state, whatever the regulatory structure onion is in a way that still drives the promised operational

efficiency and value proposition of tokenization. I think in many different assets, depending on the location and asset type, there have been barriers to actually tokenizing the asset in a meaningful way to drive the benefits that we all foresee from real tokenization. With that being said, I think over the last six months specifically, you've seen some more quality issuances. I think HSPC just did something recently. I think you mentioned overstock as well. They're an audit client of KPMG and obviously that issuance falls within the scope of their operating environment. So again, I think it's something that's evolving slower, but there's organizations like onera that are now taking very much so institutional approaches

towards security tokenization and taking established regulatory frameworks and actually leveraging them as part of their business strategy versus trying to build something that by nature clashes with the regulatory environment. So I think we'll probably continue to see a slower uptick than we expected in 2017 and 18 on broader security tokenization. But I think we've now laid the foundational infrastructure so that when institutions move, they can do so in a meaningful, secure, compliant way. What is the kind of leading crypto asset that the majority of institutions that you're interacting with care about? Is it scriptural? Or is it Bitcoin? And on the Bitcoin front, specifically, I'd be curious what your view is

on just the pace of institutional adoption. Fidelity is very public with their Bitcoin efforts, but they're sort of at the leading edge. I mean, they're still very much so at the leading edge. When you look at the U.S. market, I see three very much so progressive institutional projects. I think we all can align on who they are. But to that point, the dynamic from our client base is very fragmented. We are a crypto-native crypto-first business. So in the context of of crypto-first exchanges, custodians, and related businesses, service offerings, node infrastructure, data providers. Obviously, there's a ton of interest in that space.

From the core institutions that we traditionally engage, there's still a pretty substantial gap between where the leading institutions are from a strategy perspective and where the other large institutions are with regards to public blockchains and Bitcoin and other types of assets. They are very much so looking at applications of stable coins and blockchains across different interbank or consortium type models, but less so directly with crypto. I think there's still, to some extent, a gap between the leading institution that you mentioned and their peers relative to some of the other folks that are starting to pick up the pace. It's kind of what I figured.

It's going to be interesting to see just the progression of some of these exchanges. Some of these exchanges were just totally dismissed years ago by the traditional retail brokerages of the world. It's basically a gambling casino is something that you'd hear from folks. But what's happened here is that they've just onboarded a tremendous amount of customers. Some of these, a good many of these exchanges actually have more customers than Schwab or TD Ameritrade on the retail platform. So they've an enormous amount of customers. And by the way, a lot of these customers are sort of these millennials, highly technology savvy customers that will be benefiting from intergenerational wealth transfer in the years to come as the boomers kind of.

or retire and pass on their money. So they're actually great customers to have on a brokerage platform. And you could actually imagine a bunch of these exchanges becoming the retail brokerages of the future and adding additional assets other than just public blockchain crypto assets getting into traditional securities. Whether that be tokenized or not doesn't really matter, but they're owning the customer relationship. So my view is that this is sort of this innovator's dilemma here that we're seeing with a lot of the incumbents that the exchanges are going to be extraordinarily well positioned if they can stay on the right side of the law. Fully agreed. And I think you are seeing massive efforts by leading exchanges to stay on the right

side of the law. And I think they've done a great job in doing that. It's very much so setting the pace and engaging the policy landscape in a meaningful way to drive education. And I think the efforts in the U.S. market are finally starting to pay off, I think, to your point, through the network of customer relationships that's being developed. With that point that you made, I think it sets the stage for a pretty strong discussion around whether or not institutions will move in a meaningful way into M&A activity, especially if you see strong balance sheet companies persist through the next three to four months and continued economic headwinds driving the broader market and potentially crypto into continued stagnant pricing and lower lows. So in that model where asset valuations

are very depressed and you have some strong balance sheet financial institutions, I could see a model quickly where those retail exchanges are being acquired. But that being said, I think on a longer run basis, if they have a 10 to 20 year vision and can support that type of kind of trajectory in terms of growth, they have the customer foundation in excess of any of the large existing retail providers. So you would imagine a model where they could potentially drive exponential growth in the context of wealth transfer and already having that customer foundation. So those that stick it out for the long haul may be the ultimate winners. Yeah, that's an interesting point on the M&A.

I mean, if you were doing an exercise right now as a traditional financial services firm and you said, I want to go acquire five to 10 million customers, high quality customers, and I want them to be focused on a particular set of assets where we can actually monetize trading fees, unlike our core business where trading fees have gone to zero, or we want to be able to monetize custody. Custody has been commoditized across all other asset classes. then some of these exchanges and brokerages in the crypto asset space get really interesting. Do you think that we'll see that kind of way of it seems to me like there's just a lot of banks

and existing financial institutions that are sort of sitting on the sidelines for regulatory reasons, but we'll probably be in a build versus buy decision mode here pretty soon. I think the build versus by decision mode has already been on the table for a period of time now. I think the lagging institutions are already in established for, relationships to provide the capability in some regard, whether or not that's directly in-house or not. I think the people that are bringing the capability in-house and acquiring potentially these large customer foundations in the process of also acquiring native capabilities will enable the revenue model around transaction monetization, which all starts with custody. You can't facilitate

monetization of transaction and crypto without having a native custody capability. If you give that capability up to a third-party provider, that third-party provider is going to monetize and maybe profit share with you, but likely going to capture that revenue opportunity. That makes a lot of sense. One of the reasons why I think Fidelity was so successful in getting that product to market, unlike some of its peers, is just that there was buy-in from the very highest levels of the organization. And there's just really a really desire to persist through some really difficult times, frankly, during the whole private blockchain hype cycle and Bitcoin crashing down to $200, there was a level of commitment there to keep on innovating.

What level of the organization are these kind of large enterprises that you're dealing with? Do you have organizations where the buy-in is to the very top? And I guess what's the landscape look like in terms of the success of a small kind of innovation group being able to push this forward versus this being on someone's scorecard at the highest levels? Yeah, I mean, I think the question that, again, you've positioned these questions very well for me. Thank you for doing that. The teams that have had the core innovation focus without strong business buy-end and executive

leadership from a business perspective are struggling to really have the same traction to scale the business and realize the potential of kind of the vision. In that model, it very much so takes an executive business leadership approach to say this is going to transform the middle and back office of an institutional custodian and we need to be on top of this to capture the revenue generating opportunities of the future and potentially in doing so pursue an M&A strategy that brings on a greater expansion in existing customers and potential future customers. It potentially represents a pivot as well towards retail from pure institutional. But at the end of the day, I think the companies that have really invested like Fidelity and BACTS and are putting these,

this is a business priority for those functions now. Fidelity Digital Asset Services is fully dedicated to the space. BACT is fully dedicated to front office loyalty with Bitcoin and digital asset warehouse capabilities behind that. That's their core business focus now. So I don't see those organizations pivoting in any way. I think to some extent it demonstrates that you have to insulate and really scale these businesses independent of existing legacy systems and culture and business and process and kind of reinvent everything from the ground up and leverage what you can. I think it's starting to happen more meaningfully now and it's going to be a business-driven mandate as other organizations start to capture revenue opportunities that are foregone.

Yeah, what you said about innovating within a big enterprise certainly rings true. from my experience, I think it's really hard to build one of these businesses within another business unit. Think about the Netflix example of when they went from DVD to streaming. They legitimately had to take an executive and remove him from his core business and put him into a totally different business unit. It'll just get smothered otherwise. I mean, a big bank is really going to have a hard time standing up a dedicated crypto asset custody practice without really giving that organization, the autonomy to grow. It's not going to be big enough initially to live on its own and to get any air. So I think that certainly rings true from my experience.

What resources would you recommend to folks that are ramping up to speed on blockchain and crypto to get to that sort of fundamental level of understanding that is so important? I think this is a continually evolving answer because the content and resources are obviously constantly changing in the space. But I think over the last year and a half, we've started to see more anatomically correct and more sophisticated academic resources that, I think are publicly available and free to use. So some of the courses on edX are great. Some of the stuff that's come out of MIT, it's not necessarily free, but it's laid a great foundation, obviously staying completely engaged into all of your public media sources and related

newsletters and distributions. I think from my perspective, I'm a Boston guy, stay closely engaged in the Boston community. I love everything MIT produces. I love coin metrics, state of the network newsletter. If you guys dig into coin metrics, they're fantastic. Some of the best research that I see on a week-to-week or bi-weekly basis. And then I have my own plugs into newsletters that I get from Tony Scheng and other folks in the industry. So I think starting with some of those publicly available structured anatomically correct learning courses and then laying the foundation for some more consistent engagement through media in CoinDesk and CoinTelegraph is helpful. Forecast news has been great for me as well. Well, this has been great. I can't tell you how excited I am just personally to see

KPMG taking such a leadership role in this. I think back to 2014-15 and there are really no audit firms or consulting firms of scale that we're doing anything seriously. There's certainly a lot of people going to conferences and talking about putting broccoli on blockchains and things like that, but no real work. So it's really exciting to see what you guys are doing. And I can speak from firsthand experience that the work that you're doing is very real and that you have deeply traditional customers here. So where can people stay in touch with what you're doing and learn more about your work at KPMG? Yeah, I think that the best resources are through the KPMG US page. We have a whole focused discussion around innovation that the blockchain center of excellence

and all related thought leadership is hosted on. I think also staying engaged on LinkedIn with KPMG US and KPMG blockchain is an easy way to stay in touch. myself and Arun are always posting alongside Teigen and Shaker and kind of the leadership team of our blockchain group. All of the thought leadership that we publish are partners thought leadership and relevant pieces. So that forum, LinkedIn is probably the closest to stay engaged on the bleeding edge. But again, everything is posted through our pages and frequently covered in the media when we do push large pieces. That's awesome, Sal. Well, thanks so much for joining the pod and looking forward to getting a beer together in Boston once this all settles down. Absolutely, man. Thanks for the

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