Dr. Claudio Tessone, Alexander Brunner - Fireside chat

Transcript

good morning everyone so um in In This Very in the next 20 20 minutes we want to discuss one of the questions that after R regulation pops up everywhere is like you know is mikar or mik the upcoming EU blockchain regulatory framework is that the holy grail and in the last couple of years you sort of seen three approaches to blockchain or crypto the first one is the American one the American one is like we do not agree what it is but we will sue companies being active and that's still ongoing so that's the the American approach you even have two agencies battling who's who's in charge I think after FDX and all that we've seen that's probably not the best approach but the old much older

and long-term approach has been here in Switzerland it's been very pragmatic by actually having discussions between the government the regulatory bodies and the industry just recently you saw that about the staking guidelines for a while FEA said if you do staking because of uh in in in the case of uh of of of of bankruptcy you basically need to be a bank if you do staking it's a security there was a discussion and it was updated and I think at a moment it's more workable so it's a very pragmatic approach here for the last 10 that the crypto value is 10 years old and now you have the European approach and the European approach as you guys know there is old saying the US innovates and the EU regulates and the EU really likes

regulations I must say I'm a bit surprised M car only has has 166 Pages uh if you want to read it why I'm saying that that the EU AI act has thousand pages so I don't know if that says anything about crypto versus AI but the question is here is uh and and and that's a discussion we had many times is this the Holy Grail will it now attract all the companies coinbase Circle there in Germany and France will Switz be left out is that the better approach the you approach or are are the Swiss still having a leg up how how how do you see that what's your experience with EU and R regulation and I know you have some firsthand experiences tell us thank you

I I think that the i in general famework it's very important at the end of the day to have some sort of Regulation I think that exactly what you said before the challenges that us is having and also listening to what is happening in um business models that are still being developed in the US um and the lack of clarity of what happened all the time with centralized exchanges Etc has made the country to lose a very interesting opportunity in this space and Switzerland even it's a small size I as I I told you multiple times I am always mesmerized to see the the the extent of the ecosystem here in Switzerland compared with the same experience when you go abroad there are

very few places that have this level of a activity and it I say this that to me some sort of regulations is important the point is excessive regulation as well is something that is detrimental for the growth of a of a BB ecosystem you have an ecosystem you have platforms interacting with each other you have users wanting to use the system Etc when there is no friction between all these processes taking place okay and I think that Minka is trying to do a too many things at the same time but in too many different jurisdictions and one thing that I like of the EOS system here is um how approachable different people of

different stakeholders of everybody of at all levels you were talking about the staking the statement about finan related to staking um how closely knit together all the people is in this space H with respect to Europe I I think that a a very simple example of what was happening in the in the past years was um the following we're very interested in here in our University like in most of universities of the world we are very interested in identification of our of our students because for example you know that there is a lot of a administrative burden when we need to certify a students that are incoming the previous studies that they have had

specifically if they are from other countries even as simple as if it is a a student coming from a European country as well there is a lot of paperwork involved because the processes didn't evolve for the last H 80 years and um we at the University of shich were running some Pilots actually with people um with industry stakeholders here with swisscom and trying to have a certification system for our own University and the important thing here is this is a certifying identities of a students is

a standard process that the university needs to have but because it is a standard process what you need to do is to do it at the level of um the administrative people that is involved in charge of doing this and er We Run The this pilot we had in our faculty issued a lot of certificates in blockchain for one year we are trying to think to expand it and expand it to to a national level and this something that is very simple here because there are only 20 universities when I when we were discussing the results of the pilot um I came to discuss the same issue with stakeholders of other European universities European University from EU and what they told me was look what happened

with digital certification is that we started having pilots in 2017 2018 we run it locally inside of our own Labs we saw that it was feasible but at the point in which we reach Administration all the time was a it is not possible because we do not have the right to do that we need first a a regulation on how this identities are going to work out and when they came out after a few years the the inherent complexity of what were the processes and how it would be implemented and um ended up creating a situation in which after five years all the universities are completely stalled at the European level in this part of um

identification you see that even now we are discussing with a network of which the University of su belongs to of European universities all the process of digital certification regressed if I have to say for the past five years and nobody knows how to do a a process that is simple and that is in the benefit of everybody else as it is H this one so it's the technolog is here but the processes are bed down by bureaucracy that doesn't sound too surprising if the you it's a good way of summarizing it one of the interesting things when you talk about regulation it's everyone says we want to have regulation or the

right or the smart regulation but what it basically is when you talk about regulation is always a tradeoff regulation is like you provide rules but you also provide enough freedom to innovate because Innovation at the end of the day is freedom to experiment now if you stop that very early on it does doesn't happen so one of the questions I'm also B you're active with other universities one of the things I hear a lot is now the EU has this reg reg regulation you can debate it apparently they whole certain things are not covered but what about the knowledge and the expertise is that available I heard one story like for example from Germany that buffin the regulator in in Germany has little expertise so it's really

challenging and I went to a presentation recently by fimma here they said the same thing this said it's very hard to understand the technology you know it's for them as a regulator they're not developers they're no coders so I think Switzerland at least has 10 years track record do you see there's enough education expertise in Europe or will that be a hindering no I think that you you have to see that the the scale of the things are completely different because we are talking about a jurisdiction that has 10 times a sorry um 20 times the the population of Switzerland so here one thing the I have some I have some team members that participated in discussion routes with finma related to this staking thing and actually the the questions that finma was asking were

were asking were very pertinent because they have been exposed to the space for a lot of time and we humbly at the University of suich but also High salute eth Etc have been producing knowledge to practitioners as well having in discussions with practitioners for the past seven years because we are very active I think that we are now writing a very interesting initiative together with a network of universities here in Switzerland I am really happy to see the a level of activities that in a lot of faculties and from completely different disciplines how seriously this topic is taken is Tak is being taken by by ourselves by Academia as well not trying

to do knowledge transfer into industry and this is something that I am a little bit biased here but if I have to see how the same groups react or behave in other places of the world in other jurisdictions they are much more marginal to the to the discussion also with the stakeholders and this is what you are asking now I think that here there is a nurturing of the ecosystem but also of government and um Regulators in which they are really trying to acquire the knowledge that is important in order to Foster the the acceleration of the ecosystem and that's interesting because recently FMA if you want to read that they published annual report and they talk about crypto among other things and they say whenever they have fintech

applications uh it takes them on average two months to respond on average maybe some of you have had different experiences but it's quite responsive and I heard different numbers if you want to try this in Germany or in France you can multiply those month by three four five times so it's quite a fast and a lot of that has to do that they have been exposed to many things but one thing that FMA came up and and one of the things they said explicitly and coming back to your education question is that at the end of the day as a regulator when you get a white paper buy some pro pro project for some coins whatever it is you basically the end of the day as a regulator have to sort of understand the code and that makes it much harder they're not used to looking

at code Regulators are used to interact with and entities with the bank how how do you see that have you had experience you've been exposed to fimma how would you rate their you know understanding of code on the algorithm is that is exist is it lacking do you need more education well obviously it is I I think that the let me say the the foll thing finac has been very open all the time to try to better understand the algorithms that are behind the system I was involved in a very early stage of the Swiss ecosystem in a a project and actually they were looking at the logic of the algorithms that we were trying to implement for a Marketplace and it in a very detailed Manner and I think that

this is experience that they in general have and I think that they gathered if they also have very low response times nowadays is because they a understand far far better what they are um trying to what they're looking after okay and this is very interesting thing and also in the discussions of that I had with the people that went to to discuss with them I think that the as I say the questions were far more relevant than the ones you would would usually think of regulators um someone may criticize the the the speed at which the the clarification related to different incarnations of a staking for example is is being done but that's a completely marginal thing I think that

the steps are going to the right direction also bringing Clarity to the to the space constantly and they have the they are acquiring the knowledge and I would say that it's not only finma if you talk to the people from SNB as well they they know very well what all these systems are about and which are the potentials that they also bring to them one of the I think Stand Out features of the Swiss regulation the Swiss actually legal framework is it's often very pragmatic it's business friendly and it's based on di on dialogue like I'm I'm involved with one company and that is getting a license and you can have an exchange with FMA you know you get a response you get feedback in your experience have you seen that in Europe as well or other different mindsets to

rare regulation like one friend recently said here you still looked at as as as as sort of an equal as a business partner if you try the same thing in Germany you first looked upon that you're doing something very suspicious or even CRI criminal the mindset is very different have you experienced that in Europe as well what kind of mindsets do excess yeah but also in a way I may be saying something perhaps I'm generalizing too much another thing that this also led to the ecosystem is basically trying to um do what the EU or the countries want because you have two options there at the European level either you try to do your own business model and then you

face a lot of challenges because people do not understand people um have a lot of prejudices about this business area ER this is and then the option is you go go into a Minefield the other option is H you just try to do business with the um at the country level or at the European level completely aligned with the government or with other stakeholders and this is exactly one thing that is completely um degrading the level of innovation that you have in this stage because you're not using your H slogan you're not you do not have the opportunity to do what

you really want to do or leverage on the opportunities that this H new platforms allow you to develop so as we slowly approaching the end of our session what's what's your out Outlook is mik going to be a boom for the entire industry will Europe become the leading light when it comes to blockchain uh how how do you see that and know in comparison to Switzerland I also want to hear your opinion about this but before that to me I think that the the problem here is that MAA forces people to get into this regulatory framework in very short time frames at which you do not have the knowledge capacity to absorb um and to make rational decisions in the time frames that have been being imposed and so what I fear is that as it is

currently implemented is going to actually create a buffer zone in which people try to become compliant there's going to be a not a very elegant situation with respect on how these things are resolved ER and we will have a a time period in which a Innovation is most likely actually going to decrease in because people will just try to accommodate to the regulations ER and the the decision makers will not be there to do the right decisions and I think that this is a very challenging thing I think that Switzerland has a very interesting lead on this but what's your opinion I think to summarize what I've I was Member of Parliament for seven years

so I've seen the government side and well I mentioned before when it comes to Innovation Innovation is creativity and it means freedom and you need certain guardrails so you have to strike a balance between let people try things and fail and sort of prevent bad bad outcomes and if you are too freewheeling I think we saw that in the US with f it can be really bad for for the outcomes so that's probably not the best approach I feel like the U is as always very Administration bureaucracy um focused and to my understanding I don't know if you agree but Innovation doesn't happen because government is very much involved and I've seen that the government even if it gives money you know certain governments are throwing out money they

always want to interfere and that's not the Bas so in that the governments are not innovators and I think Switzerland still has this balance between a framework we have crypto Banks we have crypto Brokers we have exchanges we have everything custody it's there's a lot of clarity on that side but you can still uh in in innovate and there's still some empty SP I still believe that Switzerland when it comes stability and predictability which are important for businesses Switzerland is a good uh place to be the only Cav that there is as we have in financi and banking is Market access how do you access from Switzerland European market and I know there's a lot of talk about doing this through lonstein and there might be ways

of doing it so we'll see I think that will be for me the big big question mark can Will Switzerland be shut out from the European market will it be so strictly enforced or will we have access and the ecosystem here is still very strong and I know that predictability is at attractive there's a few companies who still looking at Switzerland and a lot and to finish because and also I'm happy to be here at the University because of the developing talent and the research being done this is really appreciated on global scale because it's about knowledge and expertise so we'll see fantastic thank you very much Alex a pleasure talking to thank you thank you so [Music] much

uh uh ladies and gentlemen we still have uh a few minutes for questions if there are any questions fast yes we are a little bit ahead of time which is obviously a good thing um are there any questions sorry for that we are a bit short on microphones thank you very much um thanks for great uh conversation the question is around uh a comparison of Regulation across different jur ditions if you can compare EU UK Switzerland um the Minas you know UAE us Singapore

where would you start a company today if you're starting a startup no I I I can answer in two jurisdictions Singapore I know very well since lunat Tera crypto dead I think that's a very short brutal summary and that's just the case and it's a good showcase what happens if there's a big fool out the government didn't like that they were in the Press Singapore government doesn't like that and their all own citizen were impacted and the interesting bit I think we have a lot of discussion now is about du Dubai I was recently the first time but the interesting thing about Dubai yes you can get easily licensed H it's interesting it's good to start up you know is is a really thriving ecosystem but they have the same problem as we

just discussed whatever they have like 20 plus free trade zone some some license are just for one free trade zone some are in the region some so it's it's a very small market so obviously it has attracted a lot but the the audience or the client base is still very small so I think Dubai is still faced by the same problem we have where are the bigcoin consumers and that's obviously Asia so I I think um obviously it attracts a lot of attention and and on the US as I said before I see a lot of companies trying to leave the us because it's just very very unfriendly because it's just a lack of clar of clarity and again it's a good showcase that for a business that's actually the worst in if you have bad bad bad rules okay but if you have no no

rules and I mean just just just just look at SEC now got the permission to go off the coinbase because of the staking I mean this is terrible you know it's it's it's insane what's happening so that's my take on those three regions I don't know if you don't add on no I I go pretty much in line with what you are saying I think that also it Lin is a very interesting bridge but it is also so um exactly now the fact that maika was implemented as well at the European Union level also changed as well the original way in which all the digitales were treated as well L and so I think that the sort of Independence that Switzerland has in that space is makes

it interesting MH yeah maybe just add on one interesting question is where do you go in the EU you know it's sort of you can go to Germany to France and one of the reason countries have popped up is interesting is is Oster that seems to be some people perceive that's the most crypto friendly or understanding of the crypto industry but I'm interested to hear if anyone has views on that question please first of all thank you very much for your presentation it's great to be here and thank you for the conference um I my question is about I mean it involves a little bit uh doubt to the negative approach approach to uh European regulation uh because um Micah

is more uh um institution I mean uh service provider company focused regulation as I remember it it explicitly states that purely decentralized models are out of the scope of the regulation and when we look at the structure of mic markets in crypto asset regulation it is a kind of identical not identical but similar copy of the markets uh the directive of markets in financial instruments so basically it uh regulates similar institutions who act in um crypto industry so my question is that if we put aside um um libertarian

propaganda do you think that um regulating third parties or regulating crypto assess service providers um a good idea I mean is it a good idea to regulate them strictly thank you if I understand right what I would say is um I think it shows a problem of doing a two targeted regulation I think that the pragmatic approach to the regulation is exactly what you want to do that covers more General cases and I think that the fact exactly that these kind of platforms that are actually the bread of why all these ecosy systems are interesting I mean this fact of having the centralized governance we are talking about

completely Revolutionary Ways of running organizations and we are still sticking our or some Regulators are sticking themselves to traditional models shows the shortsightedness and the problem of trying to be excessively tight on which are the mechanisms in which were in which the the the conditions under which people can operate or platforms can operate and it's also a lack of understanding of what these Technologies enables maybe just very a very basic observation I've been in crypto for many years almost I don't know 80 years and one of the conundrums of this decentralization debate is it really goes against whatever the government believes in because if I get up now and just punch

you in the face and break your nose uh someone will call the police and say hey I did an action against you so how we live in our society is someone takes an action you're responsible for the action so all the regulation or actually criminal law also sort of flow is what kind of actions do people do so the idea of there is no one or a very vague group of people taking actions really goes against whatever the government is believing in what you call de da or defi whatever and and fima recently said you know from a legal perspective they have to regulate entities and entities that are run by someone that can be held accountable so the moment you go into this Dow discussion it just doesn't refle it's not that FEMA doesn't want to

do it they just by law they can't and I think that's a a conundrum that will exist because it goes against the basic principles how we live in having said that I I've been in this industry and even a former former politician I like this discussion a lot because I like to call it you have to poke the bear every now and then and just get this discussion going I don't know if you want to I want to live in a world of dows I'm not sure but the idea and the discussions and the thoughts about that is very refreshing and the thing swi has those discussions and I think it will stay with us for a couple of years there's no quick solution one of the answers Fe always said when the recently this def5 panel said we have to stick to what the law says if you want to have

DOS or more decentralized OPP you have to talk to the law to the lawmaker to par Parliament you have to convince politicians that this is a good idea it's not a a regulatory topic but it's a wonderful discussions to have and as a person who likes liberal ideas one should poke the bear or the government in in a friendly way there's another final final question I see uh please keep it short the next session will start in just a few minutes oh over here well thank you so much for uh this

talk I would like to follow up on the political issues which is basically as you mentioned we have to convince politicians to be like crypto friendly somehow um how do you see the landscape regarding like political Lobby maybe uh blockchain interest in some parties or candidates like do you think we will see in the future stuff like uh the blockchain party off stuff like that I mean there used to be a private party and privat Pirates not private Pirates party and it's it was run by Alex R rousel he's one of the key figures in the Bitcoin Community if you should follow him in telegram so there has been approaches like that uh I mean

I think what what happened with the Ico guideline and also the DLT framework we had this unique opportunity where there was a lot of enthusiasm about Innovation and the parliament passed that law without any opposition which was amazing having said that there's just there's a blockchain federation a a loping group there's a parliamentarian group of digital assets what I have seen and I think you see that everywhere I think the bandwagon has moved on to AI uh when you talk to politicians that's what they're worrying about at the moment or think about and and sort of crypto and blockchain has been bit you know toned down so at the moment I can't see a party like that happening and anytime soon and last and last but not least I think um it's what again what

I've seen is in Switzerland you can have those open debates there's different party members that opened it but it's a very tricky topic for politicians you know I've been in the space for many years so I'm claiming I understand a little bit I'm not claiming I understand I'm not a developer but those discussions are very tough for po po politicians and AI is as tough as crypto so making those topic available to to PO politicians is also an educational benefit you know I think something for the universities yeah the only thing that I would say is related to this idea is the problem is having the full um platform for such a political organization as well is very difficult I think this is

only one angle I think that um either you is the difficulty of trying to completely change a system from within okay and that's why my my my con room appears as well