METACO TALKS EP. 33 Embedded Custody: The Shift from Digitization to Tokenization w/ Nitin GAUR
METACO TALKS EP. 22
In Future Finance we Trust w/ Mathias IMBACH (CEO Sygnum)
Fri, Sep 17th
Recording of live event
Fri, Sep 17th
Recording of live event
Our guest for this METACO TALKS episode was Mathias Imbach, Co-Founder & Group CEO of Sygnum, the world’s first digital asset bank, founded on Swiss and Singapore heritage, operating globally. Prior to Sygnum, Mathias was General Manager at RNT Associates, Mr. Ratan N. Tata’s personal investment platform, where he joined as first employee. He led multiple venture capital and private equity investments and participated in Blockchain/ DLT related equity deals globally.
In this episode, we discussed, among others:
[00:03:55] The rational for being a digital asset bank to achieve the vision of democratizing capital.
[00:08:00] Differences in demand and risk appetite between retail and institutional clients.
[00:10:11] Tokenizing art and luxury goods
[00:16:05] How is a regulated bank approaching DeFi
[00:18:52] Managing the East-West axis, and two regulatory environments in Switzerland and Singapore
[00:25:01] The pitch for Bitcoin and crypto sceptics
[00:28:01] What’s next for Sygnum?
[00:00:00] Adrien: Welcome to the 22nd episode of METACO Talks, a series of live conversations with the people making and shaping the future of institutional digital asset management. Today, we have another special guest. I’m very pleased to have here Mathias Imbach, co-founder and group CEO at Sygnum, the world’s first digital asset bank based in Switzerland and Singapore.
Before creating Sygnum, Mathias was involved in multiple engagements, spanning venture capital, private equity, as well as consulting. Lately, his main focus has been on blockchain and distributed ledger technology, and cryptocurrencies with global projects pretty much everywhere around the globe.
According to Mathias’ LinkedIn profile, he has been excited about disruptive technologies for a long time, which will impact how he lives, how we live; how he works, how we work; and how he interacts with other people digitally and physically. He enjoys playing a role at the interface of the West and Asia, and to bridge the traditional view with an innovative technology mind-set.
Mathias, it’s a pleasure to have you here in this call today. I would like to open with the first question regarding your company Sygnum. We want to know more about how you got involved into cryptocurrencies and blockchain, and why Switzerland and Singapore? Why those two countries?
[00:01:30] Mathias: First of all, thank you so much Adrien for having me, and also congrats for setting up METACO Talks. It’s a great initiative. I always enjoy listening to it, so it’s an honour to be here.
To your question, how did I get into crypto, it started in 2012, very much being influenced by my brother who started mining and doing stuff in the garage in this space. It was interesting. It’s about transferring originals, not copies, for me to you in a completely decentralized manner – I just found it fascinating. But then going down the rabbit hole from 2014/15, when the Ethereum white paper came out and the protocol was launched. That was for me the way out of how we have been and continue to in many ways do things in today’s world.
I was at that time investing for Mr. Tata in technology companies, and always found these founders talking about how they want to monopolize and monetize the data they’re getting from the users. I thought that was a bit scary, quite frankly. That led me on, from a philosophical standpoint, quite libertarian journey from 2014, 2015, 2016, 2017, with all these great founders projects, investing in ICOs, learning about all the great innovations. But then also I think it was about democratizing capital and democratizing access to great opportunities early.
Then in 2017, together with my three co-founders whom I’ve also met in that process over the years, all of whom have also looked at this space, we realized it’s a great innovation. However, it’s a bit detached from reality in some sense, and we need to start building bridges between today and the future finance on the principle that future has heritage. The future finance is more decentralized financial market infrastructure, but at the same time, a heritage of excellence in banking, regulatory standards, anti-money laundering laws. That led to the formation of Sygnum.
[00:03:35] Adrien: It makes perfect sense. How would you say that being a bank helps you in this value proposition? We’ve seen in this field, many start-ups and many technology firms that have emerged and been wildly successful, and they did not necessarily need to be so close to the regulators. What is the unique value proposition and why did you choose to become a regulated bank?
[00:03:55] Mathias: It was all about looking at the situation in 2017; industry being very innovative but at times a bit detached from reality, and driven by one key point – lack of trust. Whenever you manage money, people’s money or your own money, it’s all about trust. That was lacking. Without that, establishing that layer of trust on top of the great technology and what it can do and the many use cases it brings, we were sure that they will never be broad based adoption of this technology, thus ultimately the great visions that many of the founders have and continue to have could not really come to fruition. The great utopia, that everything will work as we want it to work in the future, doesn’t work without creating a path towards it.
We said there’s three principles we want to build our company on. One is, no shortcuts. No shortcuts in terms of governance, and you see that if you look at our advisory board or management team. We said no transaction on our platform before we are regulated. Why? Because we anticipated a lot of the 2017 scenes happening in front of our eyes. I can give you a few examples in a bit. If we don’t have a transaction before we are regulated, we will never be in the future looking back, being accused of having a legacy, dragging us down, slowing us down and not being able to push forward. We can say we don’t have legacy. We can build from scratch. We can build new technology without legacy system. It was the hard way.
I remember two years ago when we went live as a bank, but we are more of a technology group with a banking license than a bank with an IT department, I had quite a number of customers who would say, “You’re doing all these checks if I send you my Bitcoins. If I go to XYZ unregulated platform, it just happens.” These same kinds are now knocking at the door and realizing, “You were right. Can we please open an account very fast,” because we’re seeing what’s happening; increased regulatory clarity, but also scrutiny. Many of the players that may have taken a different path are now seeing that. That was our strategy and I think it’s now really paying off.
[00:06:19] Adrien: When you’re speaking about clients, do you mean retail clients like you and I, or do you mean institutional or potentially other banks looking to externalize their services to you when dealing with digital assets?
[00:06:31] Mathias: Our mission at Sygnum is to empower everyone everywhere to own digital assets with complete trust. If you read it or listen to this mission, it would be very clear. You will come to the conclusion that it must be retail; it must be everyone everywhere.
That is for us also a journey, we can’t do everything at the same time. We have from the get-go focused on institutional clients, qualified private clients, and banks. Why is that? Because we felt in 2017, that is the biggest chunk that needs in terms of assets and also mind-set, to be convinced to adopt and move into the new world. We felt we could contribute to the ecosystem, to the crypto community the most by helping to bridge these two worlds. Our all clients are crypto foundations, asset managers, family offices, high net worth individuals, but also banks which want to start offering such services to their clients.
[00:07:30] Adrien: I assume the more you’re facing businesses and institutions, the more you need to be regulated and trustworthy in a way, and have a larger balance sheet and ensure that your competitors and that the regulators are looking at what you’re doing.
Do you see different use cases with these different clients? Are your more retail clients looking at maybe doing more advanced things in DeFi, or in lending, borrowing; whereas your institutional clients are more conservative dealing with just Bitcoin or the basic cryptocurrencies? How do you see these differences?
[00:08:00] Mathias: It’s interesting. First, we did an analysis of this and one thing I’m very proud of is that we have very young clients. But we also have 80-year-old clients on the high-end side. Probably there is some correlation between younger clients sending in existing crypto and then doing things on our platform with it. They’re clearly more adept at using staking services, investing in all asset management products or also investing now in new types of tokens on the asset tokenization side. We tokenized Picasso, for example.
Then the a bit older generation, spending a lot of time on understanding or asset management products, the research, still figuring out what new world is. They’re coming in with Fiat, starting with an allocation maybe to Bitcoin, Ethereum, a direct investment, then along the way figuring out what else you can do. There’s yield, there’s access to XYZ, then starting to dabble with it.
On the institutional side, it has often to do with that we are set up in a way that you look at our solution, an asset manager for example, it gets you an investment committee, with all in terms of the certifications, et cetera. It’s a lot about the basic services of custody, of trading, and maybe hedging via options if you have a very strong long position on Bitcoin, for example. They’re only now starting to move into the more advanced things, such as investing in asset tokens or staking. That is for traditional asset managers moving into this space in particular.
[00:09:39] Adrien: Of everything you mentioned, there is a one word which I remember more than the others, which is Picasso. You mentioned Picasso. For many of us, Picasso is a sort of dream. You see it in the museums, you see it on the internet, but you never have the ability to touch it or to own one.
Recently we saw you made this fantastic tokenization of the Picasso. Can you tell us more about why this idea, who are the investors, and if it is even a reasonable investment? What is the risk profile? What is the performance you can get? Why does it make sense?
[00:10:11] Mathias: We are in Switzerland here; you know the environment very well. We have full regulatory clarity on how to do this, we have a new DLT law in place, which allows us in an institution manner to create digital representations of also real objects, real assets, without any layering in between. Already, today you find art, funds, et cetera, with many layers in between and structures. But what we could do now, and what we can do with our tokenization stack, and following these legal frameworks and regulatory frameworks, is to fractionalize a masterpiece of Picasso that our partner, Arthur Mundey, who has been an art investment company since the end of 1980s. They know the drill.
What it does, it gives you direct ownership to a fraction of a painting, which cost 5.5 million, and you can allocate from $5,000 upward to own a fraction of it. You can also more easily transfer it. With two clicks on our SygnEx platform, it’s a secondary market open trading facility, you can trade these security tokens.
It’s ultimately about providing, and that’s why we chose Picasso as one of first a bit more public projects. It’s because it’s about emotions. In the structure that we set up, this painting is custodized in a secure way by specialists, but the terms of the investment also foresee that the painting can be lent to museums, et cetera, to increase its value.
A lot of the investors that are looking at this, for them it’s an emotional thing. They really like the Picasso as a painter and as an artist. They think, “If it’s in the museum, I can then take my son or my daughter. I walk in and say I own part of it.” It is creating unique investment opportunities which drive emotions as well.
If you look at the performance, we only tokenize where we also after due diligence feel it’s a good investment opportunity. I’m not giving investment advice here, but if you look at facts over the last 30 years of how the value of Picasso paintings have emerged, you see a constant positive yields generation. It’s also quite a safe haven asset in the art world to call or own a Picasso. That’s another reason why we also chose this one.
[00:12:45] Adrien: What I find fascinating is that it used to be reserved to a certain class of the population. Investing in a Picasso or investing in a Ferrari, is something that not many people can do. What you’re creating is an opportunity by doing so, opening up a market which used not to be open to many people, and therefore giving a new way to diversify and invest your savings, which frankly speaking today with negative interest rates, are not very well invested by default.
Is it a purpose of your bank and maybe a purpose of yourself to open up this new markets to the general population, or is it more of an anecdotal way to demonstrate that this is feasible?
[00:13:25] Mathias: If I look at it from a revenue standpoint, this is an emerging revenue stream. I think the industry is still finalizing the establishment of the infrastructure across the value chain to make this a scale of a business. I think we’re one of the very few who have an end-to-end product in this space, and we are investing in it and we’re going to continue to do so. We’re now offering bond structures for example, as well as tokenized structures.
But the why is clearly very much in line with the mission I’ve mentioned before, empowering everyone everywhere to own digital assets with complete trust. You have much more choice in what you own and how you transfer it, in a much easier way. In that sense, yes.
If I take you back to how we started the conversation, in all my years of being quite a libertarian, 2014, 2015, 2016, 2017, democratizing access to capital allocation, to venture opportunities; that resonates with me in a very deep way. But we have to do it in stages. As mentioned before, we don’t yet offer this to retail customers. We have to go step-by-step. But yes, I’m super excited about it.
By the way, that’s one element, but equally important is the opening up to other yield and staking opportunities in space. We are also heavily engaged now with the DeFi space. We are a regulated bank, but we have a strong ambition in three phases, to show the world that these two worlds are not at odds, that they can be integrated. That in this new world of digital assets, yield generation and staking, liquidity pool, which leverages smart contracts, which is much more intelligent than we do things today, actually makes sense.
You used the word “opening up”. That’s our strategic theme of 2021; it’s opening up across various levers. You summarized it quite nicely.
[00:15:23] Adrien: Opening up to DeFi is something which is, I assume, relatively challenging for a regulated company. Cryptocurrencies, at least to my knowledge, in Switzerland are pretty well understood by the regulators. There are laws and regulations which a bank can apply today if they want to launch the services. Some aspects of DeFi are also well understood today, but if you go into the dark side of DeFi, while the most exciting things are happening, sometimes it’s so new and so disruptive that the regulators may not be familiar with this.
As a regulated bank, how do you tackle this new opportunity? Do you first go to the regulator? Do you ask for forgiveness? What is the strategy?
[00:16:05] Mathias: I’m sure FINMA may also listen, so I’ll be very careful! No, I would say we can be very happy here in Switzerland with the way FINMA goes about things. You’ve mentioned it, we’ve we are lucky to be the world’s first digital asset bank. Now in Switzerland we have two banks, Sygnum and Seba, and that is unique internationally. That only continues to be possible by a very strong and constant alignment with the regulators. We do not ask for forgiveness. We are in constant, every month, in contact with the regulator, also giving an outline where we are headed, what we want to do next.
Before we launch such innovative new products, there is a lot of conversations and back-and-forth with the regulator. While we have at Sygnum a lot of technology IP, doing this in an institution and great way requires a lot of tech talent and technology focus. But it’s equally IP for us, the way we manage the regulatory tech and that process. It has to go hand-in-hand. I can assure you, there’s lot paperwork (digitally though), going back and forth between FINMA and us before we launch such a product.
In terms of DeFi, our strategy is to do it in three phases. We have two of three phases, and we’re done. The first was, we offer access to custody and trading of selected DeFi protocols, such as Uniswap, et cetera. We have about six or seven now on our platform. The second was to add the staking element to it. I think we’re still the only bank in Switzerland and even more broadly which offers for example Ethereum staking. That’s phase two. That’s also something which brings lots of questions regulatory-wise, tax-wise, treatment-wise, et cetera. We’ve cracked that, that was phase two. Phase three is to provide institution grade bank-backed access to liquidity pools to yield. For example, a USB-C product with a lending USB-C in protocol X, which then follows the rules in terms of KYC and AML. That is tricky. We’re in the midst of it, and I’m sure we will crack it. It will be a super addition to our product suite.
[00:18:26] Adrien: Coming back to my first question about the fact that what’s innovative with Sygnum is not just that you’re the first crypto bank globally, but also that you are active in two main jurisdictions and with two different regulators. How do you manage this? It’s already hard, I assume, with one. How have you been able to also have activities and offer a suite of services in Singapore?
[00:18:52] Mathias: First of all, it was a very conscious principle at the beginning when we set it up. By the way, we had two founders of the four based in Singapore, two in Switzerland. That at the inception helped a lot to shape at the very fundamental level. These are our two hops and a dual headquartered approach. The DNA is built around these two countries while we operate globally.
Why? Because there’s so many similarities and at the same time complimentary differences between the countries. Both are stable, small countries where innovation is key to survive and thrive for the economies. Switzerland with a heritage of excellence in banking, with a long history in; Singapore with the growth potential of Asia. Both being stable companies with also open regulators to the field.
I think while in 2017 it was emerging, but maybe not as clear as it is today. I think this was a hypothesis, which I’m very happy that we took and doubled down on. We also equally said we’re going to stay away from the US, and that’s the case till today.
Everything we do, till today, it’s a one-company approach across Switzerland and Singapore. We have to everyday do our work to make sure that we bridge 12 hours of flight and the 6 or 7 hours of time difference depending on the season, to make this one company, driving in the same direction. It’s a very fundamental element. Singapore is not a subsidiary setup, that we started internationalizing a bit just to have a footprint and to have it on the website. This is a very core element of our culture on how we setup. We also believe that Europe and Asia from a growth perspective in our industry, are the places to be.
[00:20:36] Adrien: I was going to ask you, when you say Europe, do you mean Europe as a whole, or do you mean specific countries? We’ve had a series of guests that have given their opinion about this, and some claim that France is moving fast or that the US is moving fast. What we personally observed at METACO is that Switzerland Germany are leading the race towards adoption of digital assets and DeFi. What is your opinion? More than your opinion, what do you see through Sygnum?
[00:21:01] Mathias: It’s very much aligned with your view. The statement number one I would make is that Switzerland is and continues to be at the very forefront, in terms of the ecosystem that we’re seeing, the teams that are here, the talent that is here, but also the adoption and again the regulatory and legal clarity. I’m still waiting for someone to tell me a second country where we have that combination of political stability and legal clarity around DLT, and also regulatory framework where you can have, for example, a crypto bank operating completely in a legal and compliant way in this space.
I don’t know a second country, but frankly, there’s a few fast followers. But Switzerland is clearly a first mover. To everyone and all the Swiss listening, this is a huge opportunity for this county and all of us, as a community and us playing sometimes, even as competitors, to compete; to not just compete but grow the pie and make this stick to Switzerland, and grow it massively.
But beyond that, I agree with Germany. I don’t want to say pessimistic, but I just feel that there’s a lot of maybe bureaucracy sometimes compared to Switzerland. It is a bit higher sometimes when it comes to these processes. We also look at Luxembourg, which has an interesting angle from a regulatory side. Then also the UK, I feel we should not forget. That’s a little bit what we see in Europe where a lot is happening.
In the US, you have a huge innovation drives, but a bit of a mess regulatory-wise. We’ve seen that with the five different regulators looking at different topics, trying to land-grab, being in charge of many things. This leads to lots of friction. But if you look at innovation that comes from there, they continue to be also world-class from a team’s standpoint and what they’re driving.
[00:22:55] Adrien: Would you consider them sometimes as competitors if we think about the large Coinbase, for instance, that’s now listed? I assume they have some activity also in Switzerland, I may be wrong. But do you see them as potentially targeting the same clientele that you have today? Or is it a completely different market?
[00:23:11] Mathias: Well, first we’ve staying completely away from the US. We don’t accept clients from the US, it’s a strategic decision. But there are certain segments of the addressable markets, that there could be overlap particularly on the private side, on individual side that may have Coinbase accounts, et cetera. Given that we don’t do retail, it’s maybe not as big an overlap as for other players. But there is certainly. What we bring to the table is not, for example, the broadest offering of hundreds of points. But we bring that institutional setup, all the reviews that we do, the tokens that we even list, and just that trust layer. There are also people that literally want to have their assets in a Swiss regulated bank versus having US exposure on that front.
I think that the market is big enough to complement each other’s offering. Of course, Coinbase is still much bigger than Sygnum. I’m very impressed by what they’ve done and have nothing bad to say about them.
[00:24:19] Adrien: If you had two minutes to convince the most sceptical board member of a bank that assumes that Bitcoin and cryptos are used for crime and for dark web, et cetera, what would be your pitch?
Just a little story, I was no later than three months ago facing the board of directors of a Swiss bank. I had met them already six years ago, I had the same presentation of Bitcoin already at the time. I came back six years later, which is a few months ago, and they were still so sceptical. Not only sceptical, but very negative about it, that I thought maybe some banks will never want to adopt it until there is a new generation taking over. What would be your pitch to the most sceptical people around?
[00:25:01] Mathias: First, it’s very individual and you need to be in the room with these people. I would probably go about it in very different ways depending on the person or the group of persons that are there. But fundamentally, I would say that while four years ago it was okay for maybe some banks to say Bitcoin and crypto is just for elicit activities but the blockchain technology is quite interesting; if you’d say that today, I honestly must say that’s very naïve. Many realize this now, that if you have a position as a bank or a banker against cryptocurrencies, that’s fair enough. You can find reasons, that’s okay. But think it through. Have a view, read about it, understand it. Don’t just blatantly say it is what it is, because increasingly clients won’t accept this anymore. Too much has happened in the last four years, that this statement doesn’t work anymore.
Then I would probably go on and say, “Bitcoin, yes, you can argue it’s maybe not the currency, but look at what it does. It is a human invention which has shown us that we can transfer originals and not copies from me to you at any point in time without intermediary, as long as you have internet. Now think through, for example, what it would cost to coordinate and put in place such a network globally, by for example orchestrating partnerships between companies and/or countries. The complexity of such an endeavour would make it completely impossible, and the value of it as a result (and it has worked more than 10 years without any hacks from the actual blockchain) is massive as an invention.”
Then I would probably go on and say that, “If you now think about your kids or grandchildren, if you spend a day or two with them and realize that in their online game they want to buy the digital sword, which is gold and costs a bit more Bitcoin or maybe some other digital coin, than the silver one, and that they live in this world and it’s very normal to swipe and touch screen versus how maybe the banker has lived in the youth. Just ask the question: why is it then weird that in the future, for example, gold will be digital and the store of value will be digital and the way the assets can be made smart via smart contracts, that we will do things this way?”
I will plead them to be open-minded and create an opinion, versus just shutting it down on the basis of, it’s volatile and there’s no value behind it. That’s how I would try. But it’s tough, I know.
[00:27:39] Adrien: At the least you’ve convinced me! I may not be the toughest audience, but you’ve convinced me.
I will finish with a question. I want a little insider information about, what you will tokenize next? You’ve done cars, you’ve done paintings. Are you going to go with NFTs? Are you going to go with tokenized stars? What is your next idea and what is the next ambition?
[00:28:01] Mathias: Tokenization is one. Business units we’re focusing on, we have four verticals: venture capital, real estate, mid cap, and arts and collectibles. We’ve seen that with the two examples that you’ve mentioned, wines and Picasso. We have lots of traction and interest on that side, so you can expect more on that.
But you’ve also mentioned NFTs. It’s a bit too early to be more specific, but you can also expect to hear from Sygnum in this space in a very exciting way. Apart from that, we continue to go about our opening up strategy and what we’ve discussed about opening up the platform to yield and staking much more. To institutionalize that part of the ecosystem is certainly the top of our agenda.
[00:28:45] Adrien: Mathias, thank you very much for joining the show. It’s been a great pleasure to discuss with you.
Our next METACO Talks will be in two weeks’ time, and we will host the Greg Kidd, an entrepreneur and ex-CIO at Ripple, first one investor in companies like Twitter, Square, Coinbase, and currently CEO at GlobaliD.
I would like to welcome all of you to join again in two weeks and to follow us on our social networks and to register on our website to be informed when we have a new episode. Mathias, thank you again. I look forward to our next discussions.
[00:29:18] Mathias: Thank you, Adrien.
METACO TALKS EP. 33 Embedded Custody: The Shift from Digitization to Tokenization w/ Nitin GAUR
METACO TALKS EP. 32 The Power of Balance Sheets: Incumbents, Digital Assets & DeFi w/
METACO TALKS EP. 31 Crafting Luxury Goods for the Metaverse w/ Pedro LOPEZ-BELMONTE Days Hours
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