On The Brink with Castle Island - Sam Wyner and Sal Ternullo (KPMG) on making blockchain data intelligible for institutions (EP.104)

Episode Date: July 22, 2020

Sam Wyner and Sal Ternullo, cryptoasset services co-leads at KPMG, join the show to talk about KPMG's newly-released analytics capabilities dubbed Chain Fusion. Chain Fusion is a patent pending suite of advanced analytics capabilities built on leading cryptoasset data and infrastructure products, to streamline the ability for financial services companies, FinTechs, and organizations across industries to deliver institutional quality cryptoasset capabilities and services. In this episode: KPMG's historical engagement with the crypto industry How audit/consulting firms are engaging with crypto financial institutions  The choice to have a crypto specific team at KPMG (rather than simply focusing on blockchain) The reason why formal financial statement audits for crypto companies are not occuring in the US today Why an asset taxonomy from regulators matters to auditors What Chain Fusion is and what it's designed to solve The intersection of Chain Fusion and Proofs of Reserves for exchanges Why audit standards still don't take into account the notion of cryptographic signatures to prove ownership of an asset Why the FATF travel rule is so difficult to implement Check out the press release for Chain Fusion which provides a high-level overview of the accelerator suite and contact information to get in touch with Sam and Sal. Learn more about KPMG's Blockchain initiatives to explore recent thought leadership including Cracking Crypto Custody which describes four pillars for winning institutional crypto custody models.

Hello, everyone. Welcome back to another episode of On the Brink. This is Nick Carter. So we've had Sal Ternolo from KPMG on the show before to talk about their strategy as it relates to the crypto industry. Since then, KPMG has released a suite of analytics capabilities called Chain Fusion. Now, as we all know, from the perspective of a larger enterprise, actually interfacing directly with public blockchains can be pretty challenging. and chain fusion is meant to bridge this gap between blockchains and traditional data infrastructure. So we've got Sal Chenolo back on the show, as well as Sam Winer, who is Sal's co-lead at the crypto asset practice at KPMG. We also talk about the places where there are roadblocks to these larger audit or consulting

firms to engaging with the crypto industry and why that might be. We also talk about my favorite topic, Proof for Reserves. And lastly, about the FATIF and the travel world that has the whole crypto industry in its dizzy. Without further ado, let's dive right into it. 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 a Bitcoin. Bitcoin. Today we have Sal Trenello and Sam Weiner, both of whom are the Cryptoasset Services co-leads at KPMG. Sal and Sam, welcome to the show. Thanks, Nick. Appreciate you.

having us. Yeah, Sal, we've had you on before, Sam, first time. We just had to get you back on because you guys are doing some pretty cool stuff. Let's talk about it. Maybe we can start actually with a refresh on KPMG crypto. You guys have a dedicated crypto practice over there. Tell us a little bit about that and sort of how it sits within the firm. Sure. So I can take that one. We're part of KPMG's Blockchain Center of Excellence. We're an innovation function with thing KPMG, our day-to-day job is to innovate. And the crypto team is part of that overall blockchain team. And we focus 100% of our time on crypto. It's a really great opportunity. And we get to do a lot of exciting stuff because we're able to spend so much, you know, dedicate our time

fully to this. How long has KPMG been working with crypto companies? We've been working with crypto companies for quite a while now. Our journey goes all the way back to 2015, where the firm started to look into and start working with different companies in crypto. And our journey has really evolved and really started picking up, as everything did in 2017, and has continued to grow into what we are today. And it seems like that's a commonality among big firms, though, certainly our experience of Fidelity, you know, takes four or five years to really get into the full swing of things in the crypto industry. Was there kind of an internal champion at KPMG or was there just kind of a dawning awakening that, hey, you know, this is actually a pretty vibrant industry. We should be getting involved.

I think there were a couple internal champions, Sal and I's old bus here in Nagarra. was a big factor and getting the firm comfortable with working with crypto companies, getting comfortable with what it is and how it's going to change things. And as Sal and I have taken over this team, we've really emphasized and spent a lot of time working with our leadership, with our risk management to get them comfortable and to help them understand why we need to do this and that we should be doing this. And what's kind of the scope of your firm's involvement in the crypto industry? Yeah, so maybe I can take that one.

And to Sam's point in terms of the starting point of our journey versus where we are today is fundamentally different. So our toes and our entrance into the space started with the formation of thought leadership that Sam drove alongside Karen, who he previously mentioned. And I think from there, we were able to really demonstrate to the market that we had an understanding of the core risks and architectural design patterns, protocols that existed, all of the underlying infrastructure related to custody and data. And it allowed us to move into kind of the exchange space early to support with not financial statement audit or necessarily

attestation formal opinions of a firm like a big four, but to support from an advisory and consulting perspective with those organizations as they started to build out enterprise controls, as well as reporting requirements for AML. So, you know, I think the involvement started there, and obviously our success in that space allowed us to expand significantly within kind of the crypto-native ecosystem. And as 2018-2019 came to play, you know, we really put out the thesis around the institutionalization of crypto, given the demand cycles we were seeing and kind of the

innovation labs of the large global financial institutions. So since, you know, that early mover experience, we've been able to move more meaningfully into the institutional market. And I think, you know, we'll talk about it later today around chain fusion. But that's really enabled us to develop the understandings that we need to support secure trusted adoption. You know, one thing that I find interesting is your unit is specifically called the crypto unit. It's, you know, a lot of firms have blockchain practices.

and sort of historically there was this maybe this aversion to talking about crypto because it was kind of the Wild Wild West and that involved, you know, acknowledging that cryptocurrencies are a thing and they're, you know, likely to stick around. So you guys kind of stick out in that you have a dedicated crypto unit. Is that, was that kind of a deliberate move to take a bet on crypto and distinguish that from, like a blockchain practice?

Absolutely. I think that our philosophy on having a crypto-specific team goes back to 2017, where going into the market, we realized very quickly that our clients that wanted to talk about crypto didn't want to hear about blockchain. They already knew and are using blockchain, and they need our help specifically with their business. and their business needs are really more aligned to what we've seen elsewhere with fintechs and financial services. And we went to market and talked to our clients in that state of mind. And it's something that we found to be really helpful for us to stay focused and really understand what the market is needing.

And we've continued to do that to this day. So, Sal, you kind of mentioned that, you know, financial statement audits aren't really taking place for some of the larger crypto firms in the industry, what are some of these kind of hidden or just these constraints that audit firms face in terms of engaging with firms in the crypto industry? Yeah, I think we, I differentiated previously between kind of the advisory approach that we've taken into the space. And I think the reality of the environment from both the regulatory and the standards and the best practices perspective to perform some of the traditional financial statement audit functions around crypto-native companies hasn't evolved to a point

where organizations feel comfortable that there are clear guidelines and ramps and understanding of the risks associated with performing formal financial statement audits over crypto-native companies. That dynamic is definitely different on a jurisdictional basis where there's different regulatory guidance and structures. And obviously there's some places that are more progressive than But I think from the U.S. Big Four firm perspective, there's, you know, we're continuing to see more and more drivers that will move in that direction. But it's really been more so of a progressive model where early engagement and understanding facilitates the learnings needed to build the right types of tools, to go through the right type of governance and risk and controls around

how we utilize those tools, how we educate and engage with our own regulators. And I think a lot of those things to your point on the journey that Fidelity took have occurred over the last four to five years. So while we've traditionally performed, you know, purely advisory services, we've also had success more recently in doing formal attestation work. So you've probably seen some press recently around attestation work that we did for a large institutional digital asset custodian. So the progression in terms of the nature of the services that big four firms in the U.S. are going to provide will continue to extend. And it's really just been more so you know, a focused, thoughtful, risk-conscious approach to engaging in the space.

And I would say that the last piece on this is that, you know, Sam mentioned it before. We have exceptionally engaged individuals within our risk management and independence organizations, specifically Josh Close and Elena Zubarevsky, are deep technically in terms of understanding blockchain technology, crypto assets, the differentiators between permissioned and permissionless blockchains, the risk profiles of specific businesses, and they're really well educated about the domain. So it enables us to have a more thoughtful business approach to market. And again, I think the nature and scope of services will continue to expand. Is there kind of a regulatory piece at the highest levels, which sort of still needs to be solved to sort of make your, I don't

to call them, but the kind of accounting specific regulators more amenable to considering this asset class something which can be made commensurate with the standard accounting and audit practices. Yeah, and I think it's moving there, even as recently as yesterday with the CFTC coming out with their forward-looking guidance on an asset taxonomy. But I think it's about harmonization across regulatory agencies within jurisdictions and coordinated thoughtful engagement across jurisdictions like what you've seen with FATIF that will enable, you know, a more defined, clearly defined and understood approach through which, you know, audits and services that are regulated are performed. And as we achieve that harmonization and development of an asset taxonomy,

that's clearly understood across different components of a regulatory environment, we'll be able to enforce the right types of approaches, tooling, and methods to achieve, the outcomes that are, you know, desired in a regulated business. So I think, you know, it starts with that with that harmonization piece and trickles down through an asset taxonomy that's, you know, well understood, and then structures to enforce the right guardrails and measures to protect investors and guarantee market integrity, which there's a ton of awesome work in the U.S. specifically going on in this space. So we're excited to see, you know, that progress define how we collectively move forward and engage in kind of this new digital economy.

Yeah, I've always found it kind of entertaining that if you, depending on what agency or regulator you ask, they'll have four or five wildly diverging views of what Bitcoin is, for instance. You know, in terms of the IRS, you know, considers it property. The CFTC looks at it as a commodity. You know, the SEC, I guess, hasn't really made up their minds yet. FinC has talked about it as, I think, currency. We could definitely do with some harmonization, although I guess that's the nature of these assets. They still haven't really been defined because we haven't really figured out how to use them yet either. Yeah, absolutely.

I think we'll start to see clarity in those definitions and hopefully the very near future because we are starting to see how, especially over the past few weeks with Defi evolving so quickly, we're starting to see how these use cases and how the technology is being used, the different types of assets are. I think there's just increasing amount of clarity that's going to, and business, business needs that will drive fully continued adoption. So let's talk about chain fusion. So KPMG has launched a new suite of crypto asset accelerators called chain fusion. So tell me about that and the problems that it is designed to solve. Sure. So the problems that it's designed to solve have been something that we've been seeing at multiple clients over the past few years, which is data when it comes to blockchain-based and traditional systems is not as simple as it sounds.

and creating connectivity and consistent connectivity and structured data models around traditional systems and blockchain systems is a challenge. And we've seen our clients have challenges around this. And we know that it's going to continue to be a challenge, especially as we start to see institutions. If I'm a well-established institution, I may have an IBM mainframe from 1970 that is running my general ledger, my core banking systems, my core accounting systems. How can you get that to talk to your blockchain systems, to your wallet or custody solution? And what chain fusion does is it helps our clients create those connections through a standard data model and connectivity that we've put together based on our experience working with clients and across industries. So you call chain fusion a suite of advanced analytics capabilities. What kind of capabilities are you referring to there?

Yeah. So the first piece that Sam jumped in. framing around the core data model and architecture is enabled by the integration of established third-party data providers that have mature controls, so SOC attestations over their data infrastructure, and we have integrations across multiple of those providers, specifically in the context of the application layer in terms of the capabilities we're deploying on top of this data architecture or integrated within. It really starts with looking at basic accounting applications that I know, are near and dear to you. So thinking about things like proof of reserves, so the ability to take

a set of off-chain addresses from a sub-ledger of an exchange or custodian and perform near real-time or continuous verification against on-chain assets, so performing proof of reserves, we can allow clients to basically design how they'd like to create the proof model around those proof of reserves capabilities. That also allows us internally on a forward roadmap to think about the leveraging this type of tooling for basic audit applications within our audit business as those things become relevant. So the second piece that Sam framed earlier around kind of the core challenge that we've been solving in the market is around regulatory compliance and AML more specifically. So the second module and kind of application that we've

developed solves for a core challenge within a crypto-native business. And it's basically made possible by the unified data architecture. So having this consistent data model across all these different sources, crypto, native, Bitcoin, eth, permissioned ledgers that may be proprietary or based off of established, widely adopted protocols. And most importantly, alongside traditional Fiat payment systems, you can perform transaction monitoring to align against the rules required for sanction screening and other AML-type purposes. So that's a core capability. and demand cycle that we've seen in the market. And the novel way in which we've partnered with these data providers is enabling us to

create logic that can be deployed to different clients to solve their problems based on the nature of their business. The last piece before we wrap up is just the custody piece, which is obviously the core of our kind of approach and go-to-market in crypto. And we've established known integration patterns with some of the leading MPC providers, as well as some of the traditional HSM-based custody models that serve in a platform as a service or a software as a service model. So on the proof of reserves piece,

was that something that you found your clients were asking you for assistance with that kind of process? Or was that a normative thing where you're going out to the market and saying, you know, here you should consider, you consider our data architecture so that you could do things like proof of reserve. I think the question around proof of reserves is not being able to prove the existence and control of assets is something that's been a long time audit question,

and there's a lot of different ways of doing that and how that's done in the existing world. And being able to do that with on-chain or off-chain using cryptography is definitely something that's new. And we've, you know, hearing from the market, hearing from our clients and just knowing, you know, going back to our, at least the beginning of my career was around audit, knowing the importance of being able to prove existence and control over assets, it became really clear to us that this is something that we're going to need for the future that our clients are going to have to start thinking about. And as we've been doing that, we've really been hearing from the market that this is something that we're going to need for the future. that this is something that is a concern from our clients. They are interested in this from both a competitive differentiator and of course as potentially a regulatory concern going forward.

Have the audit standards that you rely on, have they caught up to the notion of kind of cryptographic assets that you can prove the existence in kind of a very trivial and easy way? Unfortunately, we're still waiting. for the conversations to evolve. We're looking at right now the comfort that that is common in the U.S. specifically is proving the existence and control of assets through microtransactions versus doing message signing and independent validation of messages,

which would be the best way of doing it. It's just we're working to, and I think a lot of other firms as well are working to make that aspect, the message signing aspect more clear and explaining why that's so valuable and how much better it is than doing just a microtransaction at a given time.

Yeah, it's kind of darkly ironic that we're talking about what is in my opinion, largely an accounting revolution in terms of really being able to pinpoint who owns what in a really precise way and kind of a real-time way. And yet we're still waiting for this concept to really percolate through to the highest levels of, you know, you really can cryptographically prove the ownership of some asset. Yeah, and I think that's really important in that both of the assertions that Sam was framing, the existence and the ownership, of assets are core revolutions in terms of how the performance of those types of verification

activities can occur. So Sam just pointed to micro-transactions for the current state of proving ownership, which inherently introduces this idea of audit risk, right? Where you're moving assets and performing operations where you're introducing risks into that position. And similarly, as you think about kind of the proof of reserve concept, it's the same exact application, just in terms of the existence of those assets. So as the industry continues to evolve and standards move forward, we're going to continue playing an active role for standards organizations, best practices,

to evolve to a point where they leverage the potential of the technology to actually optimize the way in which we verify the existence and ownership of assets. So the capability around proof of reserves is critical in advancing this discussion. And while it's something that organizations competitively differentiate based on today, it's something that we're pushing forward with the Chamber of Digital Commerce as a core discussion topic in a working group structure to facilitate a dialogue and to push best practices and thinking around how to do proof of reserves on a continuous or account level or however the design architecture should be, but to realize the benefit of blockchain technology for what it is. So, you know, that work will be continuing to evolve over time.

But as the end of 2020 wraps up, we'll probably be putting out a white paper and piece of thought leadership around that domain. Well, I look forward to that. I must say I've been somewhat disappointed in the bigger custodian slash exchanges. Their reluctance to be assertive in terms of trying to create something like a self-regulatory body or really any standard as it relates to proving their ownership. of assets. And, you know, maybe it's because we haven't had a high-profile exchange failure in the U.S. in some time that I can remember. I mean, a lot of the failed exchanges were offshore. That seems to be a catalytic moment for that. You know, in Canada, they had this big reckoning after Quedriga failed, and that kind of caused the securities regulator to think carefully about

crypto custody. It seems like there's still a somewhat a blazay attitude among the bigger exchanges in the U.S. as far as pushing for common standards, especially around something like proof of reserve. Yeah. So, I mean, I'm maybe a little bit more empathetic in that there have been efforts from different groups and different leading exchanges. And there has been significant investment from not only exchanges, but also market data providers and infrastructure providers to spend time with regulators and policymakers. And it's a lot of time investment in terms of the scale of what's proposed from an education perspective to get to a point where those SROs are meaningfully well positioned.

And I think there's been a fragmentation to some extent of the efforts that have started. So to your point, I think from a timing perspective, and in the absence of the drive for real structured legislative-based meaningful harmonization across how we treat this new Web30 era. It's going to come down to SROs and best practices and standards and organizations like the CDC pushing policy discussions and becoming a real extension for advocacy on the industry. Yeah, I guess one issue that has prevented any kind of confluence historically would have been the fact that we have the state-by-state regime for the most part for these MTLs. And there isn't kind of a single digital asset regulator in the U.S.

It's kind of bifurcated. You know, you have touchpoints with FinC with the SEC, CFTC. So I guess there really isn't a single nexus on which you could focus the kind of the discourse as an exchange or custodian. Right. And so in that absence, they've, you know, it's been a continued investment in education. And organizations specifically like coin metrics, which I know is fond to you, I mean, lead the market in terms of the quality of the data and research that gets put out. And I think it's in all of our interests to continue to invest those cycles and to make sure that we are driving the regulatory landscape to become both supportive and fostering of innovation where there's not regulatory arbitrage to other clearly defined jurisdictions.

But instead, you know, sound protected markets that function in a way, again, realizing the benefits of the technology to perform regulatory reporting, oversight, and compliance measures. And I think the potential is there and actually linking back to chain fusion, it's designed to enable those objectives in a seamless way. And we hope that the landscape will become more harmonized. I think that it will. But right now, the solution and the accelerator framework that we've developed significantly helps to optimize kind of the related processes and technology components to support, you know, the engagement across a global business. So, yeah, returning to chain fusion, what was the reasoning behind integrating with all of these multiple providers as opposed to building it in-house? How we came to that is, I guess, a pretty simple answer is as we were looking and thinking about chain fusion and building it, something we very, very quickly noticed are the challenges around building our own node infrastructure and building a node infrastructure that we can feel comfortable with that we're maintaining correctly. And that's both from a skill set and a cost perspective. And as we started, as we're starting to see companies like coin metrics come along where they're able to independently provide us with the data that we need from a source where we can feel comfortable with where the data is coming from, that's a huge advantage for us.

And I think that the need for that data, that need for independent data is something that with chain fusion, we think is a big benefit to our clients. which is integrating with those independent data sources that if they're doing something like proof of reserves, you could use an independent node infrastructure, an independent network connection of your own to get comfort that. There's no bias in your existing node infrastructure that you control. It's just one of many opportunities. And adding on that, Sam, like, I mean, the reality of existing financial market infrastructure, if you look at the way a back office function strikes the nav of a fund today, like in the

associated verification and validation processes associated like around that activity, it's always based on redundant data sources. So every large fund administrator in the world has data connections across multiple traditional financial market providers. The same exact model will eventually come to effect with the same expectation in terms of redundancy and verification across source. And also validation of the control environment. So getting comfortable, as Sam described, with the quality and integrity of the data is directly related to the posture they take from an enterprise controls perspective to support financial reporting and technology objectives around availability, security, processing integrity, all the things that we look at in service organization control

reports or SOC reports, as people know them. Yeah, this is so interesting to hear from my perspective because, you know, when Tim, Tim Rice, the CEO of Coin Metrics came on board, he proposed to us that we target, there were lots of crypto data companies already that existed, really popular ones, and they would just aggregate exchange data in kind of a naive way, but it was good enough. And he told me, you know, we actually need to target a much more rigorous approach here and mirror the way things are done in traditional capital markets, because that was his background. And I'll admit to have been kind of mystified about this at first because I was just looking at all the other crypto data providers and they were just pulling data that they got for free off exchange APIs and so on. And it's only now kind of listening to you guys explain why data integrity matters so much that it's kind of finally sinking in that it's worth investing in that kind of rigor and worth differentiating yourself from a credibility perspective. because at a certain point, you do need a data source that you can really stand behind and believe in. Yeah, I mean, I couldn't reinforce that more.

I mean, the importance of, you know, the fundamental reliance in an audit function or in a business function, like a back office that where you're performing, you know, the net asset value calculations of a fund, the entire integrity of the competency of the business is dependent on those types of controls over the data. So, you know, it's it to the point that you said when you kind of looked out to the landscape in the beginning, it's come a long way. But to the point specifically on Tim, when we met the first time in Boston, it was that exact frame of reference in terms of thinking about SOC attestations, enterprise controls, IOSCO data principles in the foundation of your architecture from the ground up, alongside some of the other stuff that you guys were doing on an optimization basis that, you know, struck me immediately that it was reminiscent of conversations. I've had about existing data providers in financial markets. So, you know, it's good to come full circle and glad that we could shed some light on kind of the attestation angle.

So in terms of the modules that you chose for Chain Fusion, what was the process for selecting those? Was it a function of market demand or was that just your own kind of evaluation and selection framework? I think it's a mix of both. We have been out there in the market. we have seen what our clients are having challenges with and also looking forward into the broader institutional markets and getting an idea of, hey, we know we've been inside

these big institutional FSs. We know we know what the challenges they have already and what they're going to need as they start to build out their own crypto asset businesses. We, sat down and thought, you know, what are these, what are the core capabilities that they need? One of those, of course, is having a custody solution, a wallet solution to be able to actually just manage their assets, to be able to move them around and know what they have is something that they're going to have to bring in and integrate with their existing systems. And it's not an easy lift when you're relying on hundreds of systems, some of which are as old as the 70s. Yeah. And like when you look back at where we started in kind of the 2018 journey, it was all around the premise of institutionalization.

So in 2018, we put out a white paper that framed this idea, and not idea at the time. It was just pushing forward that institutionalization was occurring and that it was here to stay. And that crypto wasn't going anywhere. We basically framed this as an asset class with a forward look to broader tokenization. But we built on that broad institutionalization thesis by saying the foundational core capability for institutional engagement in regulated financial markets is going to be the ability to safe keep, safeguard the asset and perform core accounting functions around the asset like fund administration.

And so our second white paper later in, I think actually the beginning of 2020, was looking at cracking crypto custody. And the idea that, you know, there's core pillars that compose institutional grade infrastructure and form the foundation for the development of what you're now seeing as kind of the race towards prime brokerage. And in order to monetize the business meaningfully in this space, the owning the cryptographic operations and performing them around how people control and move their assets is the crux of how all of the different monetization strategies are

playing out. And so the efficiencies that you can get at the custody layer and then kind of expanding beyond that to doing that in a secure and compliant way is what formed the foundation for kind of the thinking of where we've taken chain fusion. What do you expect will be the forces that actually push clients to to adopt something like chain fusion? I think changes to the regulatory environment as well as the introduction of new assets, bringing on new assets on a consistent basis. And a big driver we think will be just the institutionalization of these products of these assets. we're going to see

organize or, you know, traditional FSIs that are operating at all different levels, whether they're a community bank all the way up to the biggest FSIs, we're going to see them start to get involved with this. And there are a lot of challenges that they're going to

have to overcome and we can help them overcome those challenges in an accelerated way. So when you say you expect certain regulatory changes to potentially, be a tailwind for this business, are you referring to, you know, legislation that you expect in the U.S. or, you know, just more onerous oversight from the FinCends of the world? Or would that

be something more like these standards bodies like FATIF that are saying, hey, look, custodians and exchanges, you need to be much more diligent about your processes here? Yeah. So I think it's a little bit more of kind of the latter in that, you know, the drivers for chain fusion are largely correlated to the drivers of the institutional market, right? So we're serving the crypto-native ecosystem in the context of regulated exchanges and custodians, but increasingly the institutional landscape across the different core banking functions. And so as that market matures more and more and as there's more definition, as we talked about earlier, across kind of the legislative environment to drive an asset taxonomy that's interpreted and reflected

and all of the different regulators that we have, you know, continue to mention. That will drive the certainty behind the institutional market. And when that capital inflow occurs across the asset taxonomy, into these regulated entities, regulated investment vehicles that are well-defined and well-understood where the risk is commensurate and all the right guardrails are in place, you know, chain fusion will help to continue to engender customer trust and differentiate organizations in terms of the way they validate the ownership, existence, and kind of rigor around their compliance programs.

This might not be something that you guys have thought much about, but I was reading the latest FATF report, actually, which made for a pretty interesting reading. I don't think it's really sunk in until the crypto industry just yet. And I'm still pondering the imposition of the travel rule and this notion that transactions, should include kind of a messaging component to carry metadata about the actual entities that are transacting, kind of like a swift analog. Is that something that you've thought much about or have a perspective on? Absolutely.

The travel rules are really tricky subject because it is something that is well-known and well-established within the traditional FS world. And there's always the need to protect clients' information and to not share it unnecessarily. It's something that's very important, both in the, especially in the crypto world. And I think that we're seeing a lot of collaboration, both on a technology level and just from a fundamental standard level with, I think the, the interoperations. VASP group, we're seeing a lot of work and a lot of time being put into helping address the travel rule in the best way possible that won't disrupt business or negatively impact consumers.

It's something that is important in order to hopefully prevent money laundering and financial crimes. But it prevents a very, it's a fundamental challenge and is a little bit against what Crypto stands for in that pseudo anonymity and not putting personal information out there. Once you start separating the on-chain transactions with these separate messages, then you start to lose out on some of the efficiencies and bring in some of the inefficiencies that afflict the current market and current assets. It's a complicated situation.

I definitely think that we'll see a couple different, where we are. seeing a number of different ways to address these problems. And I think that it's still a question work on where it's going to play out, but it's definitely going to. Yeah, I haven't fully understood yet what its imposition would like in an on-chain context, because it seems to me like at that point you have to layer another database or kind of messaging service on top of the blockchain itself because, you know, just thinking mechanically how Bitcoin transactions work, there just fundamentally isn't that much space to insert metadata. You know, you're limited to, I think maybe it's 40 bytes of oper-turned data.

So it seems to me like you probably necessarily do have to layer on an additional kind of database format and communication mode between counterparties, which at that point leads you to wonder why you are actually transacting on the blockchain in the first place. So there seems to be some contradictions there. Yeah, I mean, there's clear contradictions. And I think there's also the reality of continual advances in privacy technology and the implications of scaling solutions and interoperability on the, quote, on the viability of, you know, having all of this be performed on chain at layer one. I think likely and in, in, many cases in the U.S. and outside the U.S. as well, you've seen significant progress towards

adopting technical measures that facilitate, you know, interactions between known regulated exchanges and can actually support compliance, but it is, to Sam's point, the inefficient, antiquated model. And I think ultimately we'll have, we will have a break between where Lair 1 is used for settlement and where all of this information is communicated between distinct regulated counter parties. Well, Sal and Sam, thanks so much for coming on. How would you recommend that people get in touch with you if they want to learn more about Chainfusion? Googleing Chainfusion should bring us right to the KPMG site, and they can contact us using the information that's there. You can also check out any of our white papers, cracking crypto custody, institutionalization of

crypto. Both of those are available online as well. Thanks again for coming on, guys. for having us. Thanks, Nick.