ETHMilan26 Fireside Chat

Transcript

Right. So I enjoy the first talk of the day. Beyond exchange CASPs web free and the next regulatory frontier we have um Roy Benrin uh also a sponsor. So thank you very much guys for your support. general manager Western Europe from OKAX and then Marco Tilo Jordano our tech lawyer from 42 law firm. Thank you. Thank you Alandro. Hi everyone.

Welcome in Milan. It's a pleasure to see so many people here. Uh yes, it's a quite curious, quite sadic to start with a lawyer, but I promise I will not annoy you with uh legal stuff. We we we decide to have a fireside chat. So a very informal chat with uh Raven Crimpen, general manager, Western Europe for one of the most well-known and bigger exchange all around the world. Uh we will try to discuss the developing of this ecosystem and uh the the the direction uh it is taking with exchange exchanges uh changing their way

their their business and the way to approach user uh of the web tree. maybe becoming a sort of uh infrastructor uh layer for web three. But before that, let me introduce myself. Uh probably you saw me in the past year at the community uh events here in Milan of Ethereum Italian community. Uh yes, I am a lawyer, but I am quite oriented to technology. Erh I have been a criminal lawyer for a lot of years. Uh so uh assisting platform in the managing liason with law enforcement assisting a

user in case of uh financial fraud of hacking of other uh crimes. uh then I I I I start to get involved in uh regulatory framework and uh it it seems uh a long time is passed because Roy you have to know the first time uh Alexandra and the other guys uh told before the first time here in Milan there was spaghette the first event and we were speaking about uh must we regulate create uh the the crypto environment or uh what's the liability for developers in this

environment. Now we have a a a point very very well known that is yes the regulation is arrived uh but be before that uh I would like to know uh can can you introduce yourself because it's quite difficult for me I I read a lot but you are growing so fast and moving so fast that it's difficult to to identify just one pattern so >> no appreciate it thanks for for having me here today. Um, I'm working at at OKXD to lead the Western European market and one of the countries within that market is Italy. I've been working in the crypto space for uh over five years

now professionally, but I started as a retail trader. Uh, that that was my first interest and first entrance into the crypto space. Back in the time, it indeed was all about growth and innovation. So even in companies like OKX, we've seen that transition from just developing new products and we still continue to do that. But we made an 180 degrees pivot towards focusing on regulation compliance regulatory frameworks and new licenses. This is an ever evolving space uh as we've seen with even a consultation uh being issued yesterday.

>> Yeah. >> So it continues to develop. There are multiple frameworks applicable. So I'm I'm happy to talk about that and our uh evolution in the European market as well. you you said well it's a perfect timing to to to to speak about this topic because yesterday the European Commission is a consultation open until the end of August consultation uh directed focused both to consumer so people users but also to stakeholders institutional stakeholder like CASP uh the consultation is issued in order to uh understand if it's time to review,

integrate uh develop the framework around Mika and this is my first question. so so fast. We we had uh we we waited four years for the Mika regulation. Uh and then after just one half one one year just after the grandfathering period uh Europe is considering to to change this regulation. Uh this could be um understood a little bit frustrating for who like OKX worked a lot in the last two years. I I saw you you were one of of the first platform in Europe gaining uh the the the pre-authorization

then the license then the passporting. Um do you think it is a destination the authorization mika or it is just a first step in order to gain the the the full uh stack all over the this environment? >> Mhm. Well, looking at different frameworks and rule books, they have been evolving as well. As new innovation is being launched and adopted by consumers, politicians and policy makers will take that in consideration and update their frameworks. So even though that OKX has been um a global company with more than 120 million users globally, we still wanted to make sure

that we stayed conservative in Europe before we had the Micah license. Now this MI license has been obtained just over one year ago. There's um there is this transitional period of one and a half years for crypto exchanges to get this mic license. This period is almost about to end. So the 1st of July will be the deadline for all European countries within the EA to have uh licensed crypto exchanges. This is very important to understand that the transitional period is only about to end 1 of July. But indeed Marco as you say they are already thinking about the next framework Micah 2.0. But what we think is really

important is to make sure that we have battle tested this existing framework as well. We can continue to develop and evolve. But Micah and complying with that and getting that license is not just submitting some papers and information. You need to set up your compliance department, risk department, segregate client assets, comply with GDPR, duck aid and all other type of frameworks that indirectly uh relate to being a licensed mic. Now that's very important to understand because right now there are still many active exchanges in the European region that are accessible for European consumers that do not have that license.

They do not have that overhead of complying with these rule sets. Even GDPR for example safe safely storing client data within the European Union. All those what it sounds individually minor requirements add up. We already have more than 200 people working from Europe just to maintain our business, make sure that we have sufficient compliance personnel, that we do the KYC checks that are mandated. Meanwhile, what we still see is that a huge chunk of European volume goes to offshore. So our preferences make sure that we adopt the Micah regulation that we create an equal level playing field and then we can innovate and improve from that

standpoint. I think that that's very important to understand. We can improve the rules for those few licensed exchanges right now or you can make sure that the bulk of volume that still leaves the European Union also complies with that same standard and then optimize from there. So we welcome the evolving regulation but we do think it needs to be sequential to creating an equal level playing field. You you touched uh an important point. Now the arbitrage possible uh between among regulated player or player who decided to be regulated to follow the pattern set by Mika and uh free agents that can

decide to to to to follow not follow the the rules. uh you were among the first movers. Uh how difficult was to choose a jurisdiction, set up business uh interact with a regulator, with a financial regulator and uh to to obtain first? So without pattern, without the experience who who of who come before you, how was diffic how how much was difficult to obtain the license? Yeah.

So, OKX has been purposely conservative before receiving the authorization to actively solicit clients in Europe because that's the main crucial point. If you have a referral solicitation strategy, you may say that you're not actively offering services in Europe. So, what we've done is get a jurisdiction or find a jurisdiction that allow us speed to market first and then grow from there. Within Micah, there were already a few countries that closely aligned with the requirements. Those countries were Lienstein, Malta, and France. As OKX, we were registered before the Micah regime was live in the Netherlands,

registered in France and licensed in Malta. In Malta, we had this longest lasting relationship with the regulator. And we opted also because our biggest office was there for that jurisdiction. So we wanted to make sure that it was one of the three jurisdictions where we had a relation with the regulator and that also allows a swift approval because the previous rule set already closely aligned with the Micah rules that made it a bit easier to indeed be one of the first in Europe to have that. Yeah, you you you have to know that in Italy we are a little bit behind because uh even if we implemented Mika uh at the the beginning uh and we set 12 12 month or maybe 18 month of grandfathering

period the problem here was that uh the president of our financial authority very well known very very uh experienced almost 90 years old years old uh uh declared a sort of uh consciousness objection. So he declared he stated that I will not sign any kind of M license during my mandate. Uh at least we we we changed uh all the the people in the financial authority this this uh uh spring. So we we are going to to have our fast first licenses but a lot of player flow away and decide uh it was

different in Malta. Did you find the right person to speak to to speak with? They they were aggressive. They they were open. How was the path to the the the licensing? >> Yes. Very early on, Malta sparked a lot of interest as they try to position themselves as the blockchain island. Well, they sort of moved away from that. They still want to support innovation. But the rules are is a regulation. There are two different type of rule sets that can be uh deployed in the European Union. It's either a directive like MIT the D stands for directive markets and financial instrument directive or a regulation. As an example, Micah is

written with an R for regulation, markets in crypto assets regulation. The difference between the two is the local regulators, the NCAs with a directive can choose to change the rules to their liking. That results in a lot of regulatory arbitrage. So you can choose where you get the license because in one regulator might permit you to do something and the other other regulator might not permit you to do that same thing. This doesn't exist in Mica. in my gut because it's a regulation the same rules need to be adapted by all of the NCAs that participate in it right so there's no regulatory arbitrage but you still try to see okay which regulator is approachable has enough resource to support us and is willing to sign

anything as long as it complies with the rules right so if the regulator would have taken a stance that they are not signing or issuing any license that indeed would eliminate that country as a suitable place to set up your your headquarters for the European region. So I think that you will be pushing out a lot of commercial activity and innovation from your market with with such a stance >> even because the the the Michael license is just the first step but uh all over Europe Caspar moving uh fast to obtain for example PSP license. I know that you you you follow this this part. How difficult was to harmonize regulation also to to are able to to to provide

services integrated? Now for example, it is a it is a big topic the the harmonization uh between the payment services uh regulation and the crypto asset regulation. >> Yes, exactly. So by now we have three different licenses already in Europe. We have the Mica license, that's the crypto license that most of you are familiar with. But what they also said uh last year and that is into effect since this year is that stable coins can be considered as cash. There are so many economical similarities between a stable coin in Europe referred to as an EMT, an e-oney token, and actual cash. So euro or any other fiat currency. So the

result of that was that they said in order to move stable coins you need to comply with the same rules as moving transferring cash. So that also resulted into another requirement. You operate as a crypto exchange with your first license. Now you need to get at least a second license which is a PI payment institution license or an EMI license. just to make them understand well if you want to buy stuff on Amazon paying with stable coin and your stable coin are uh deposited the cast that hosted on the wallet the the casp must have a license in order to process your payment request.

>> Exactly. So that doesn't even that adds a new license to the requirements and licensing set that you need in order to just receive stable coins, move them between your clients and allow the purchase and sale of crypto with stable coins which is of course essential for the crypto industry. >> And then and then there is a a third license Roy was mentioning before because you don't stop to crypto assets but you want to to explore also the financial products. No. >> Mhm. Ironically, MEFIT, the directive to allow derivative trading, existed even before the Mica license. But in the crypto industry, it's quite common to get the MA license first to allow you to

operate your crypto business to begin with. But if you want to allow trading with leverage, um, derivatives, futures, options, etc., you would need a different license. It is not seen as a crypto activity. What the regulators are saying is this is a financial instrument. So it doesn't matter if you're trading Bitcoin or gold or oil in a derivative contract, it remains a contract and that is a financial instrument and therefore it touches me. So we also obtained a MIT license and we are one of the first to therefore offer also crypto derivatives in a regulated way in Europe. We launched this about a month ago under the name Xerbs.

So these are longdated expiry futures with a five-year uh settlement period so that clients can trade um in and out during those five years up until settlement in order to keep the price stable. We added the funding rate mechanism that people are used to in the perpetual contracts. So combining the two that's the Xerbs that we've launched. It's it's quite successful and we really see that there's a huge demand for regulated derivatives. Yeah, we we we can say it is a superior level of providing services not not the first services provided by the first exchanges 10 years ago. Uh but I I did not follow the the promise I did

and we talk about regulation for too long. So uh changing changing topic uh you are not uh OKEx is not probably uh the traditional exchange in my mind because I saw and I used uh you should also no custodial wallet uh integration with defy uh dex routing and other web three services. Uh my question is why before all and if this if this is a transition uh a sort of evolution uh for CASP into something new.

>> Yeah, I think that's an interesting point. OKX is not just a crypto exchange. We see ourselves as a technology provider. So we are clearly a productled organization with a huge part of our organization that works on product engineering and product development. From the start we didn't even only offer this centralized exchange but we also had different avenues in product innovations. We have OK link as a data platform OK ventures as our VC arm um and then indeed the OKX wallet uh that is quite popular as well. The difference between the OKX wallet and the OKX regular app is that in OKX as a crypto exchange, we custody the client's assets. We do that in line with

the mic and the regulation requirements that we have here, but the clients also have a choice to opt for a non-custodial solution. This means that you own your own keys. You're fully in control. There's no way that we as an organization can touch your assets. So, they often say, "Not your keys, not your crypto." Well, this definitely applies to that you will be the owner of the keys. You will have full custody of the crypto and this comes with certain advantages for um crypto traders or investors but also a few disadvantages. The advantage clearly is that if any company goes bankrupt or loses access or has a security breach, well then it doesn't impact you because you're directly the owner on chain of your

crypto. On the other side, you are also directly responsible for safekeeping your private keys and that can be a challenge. Up until this year, we still see Bitcoin core developers, right? The ones that definitely have a lot of knowledge about safekeeping and developing onchain. They still sometimes lose access to their private keys. So, make sure to understand that technology properly before you engage with it. I often wouldn't recommend someone new into crypto to immediately use a self-custody wallet and store your own uh store your own keys because what happens if you lose that password or you get exploited or your um computer is

compromised then you will have no chance in recovering your own crypto onchain. Whereas if you KYC with us, you proved your identity, you lose your password, you can come back and call our customer support. You tell them, "Hey, this is me. I prove it with my identity here. I lost access. Can you verify my identity and we can provide you access to your crypto afterwards again?" So there are some advantages, but also disadvantages to the technology. It is a completely brand new bunch of services and uh the risk is to be considered as liable for everything happen during the the the the use of these services.

Do you notice your client, your user that they must be aware they are the owners of the asset, the the only owners of the key or do you help the them in case of problems? How do you manage this two different way to to provide services? >> Yes. So before opening your self-custody wallet, we will give you clear guidance and warnings that you're the owner of your wallet and your private keys. There's no way to redeem that with us.

Um even if we would try, we we are technically not capable in in doing so. It's impossible. Um so we make that very clear in the onboarding flow, but there's a lot of responsibility because you're the owner of that on the clients themselves as well. And then what we are trying to do is sure we try to help people out. We have a customer support center dedicated to wallet technologies, but it's more about clarifying and providing additional guidance. We also try to provide additional education because on our exchange, we um have a listing committee and a due diligence process before making certain currencies available. When you're talking about the DeFi realm, everything is available. All currencies are immediately available if they are on the chain and if the chain

is integrated into the wallet. So you can choose between tens of millions different currencies including the fake ones. There are there are many currencies called Bitcoin which are not actually on the Bitcoin network. We provide that education. If we spot that with our uh programs, our due diligence on chain, we even give warnings there to protect consumers. But it's impossible for us to tell them, hey, you cannot purchase it because it's out of our control in the D5 realm. And uh as a DPO you you you must know I am a data protection officer. Uh so under a privacy perspective even if you are not involved in providing services web three services the connection

between uh the the software you provide to user and the use they do about uh with with with these services probably allow you to see something about this user like the usage the the solving theommization uh between between the the name of the user and the wallet. How do you manage this sensitive aspect? >> Yeah. So there are two parts in this. One is the connection with the centralized exchange. The centralized exchange where you are KYCed and there the requirement is to comply with something called the travel rule. The travel rule is a requirement for the cusp to understand where the crypto is

coming from and where it's going as well. We verify that with a satoshi test. A Satoshi test is when you deposit a little bit of crypto just to prove that you have ownership or control over that external address >> like like when you open a new credit card and they they ask to to deposit something and then they give you back. >> Exactly. That's that's exactly the same. then uh then happening onchain and then of course internally we can map that information knowing that oh this wallet belongs to that person but that's not information that is publicly available only the things on the DeFi realm onchain that is publicly available but not to us your KYC data is not visible there but all the transactions can be monitored going between self-custody

wallets into uh different dex aggregators uh going to other participants in the DEX for example now there are multiple data vendors ers and companies that work full-time to monitor that behavior to identify fraud scams and then warn people like OKX not to engage with certain wallets so we can rightfully freeze fraudulent transactions for example like chain analysis, Elliptic, Cipher Trace. Those are big companies that look into onchain data to secure the space but also provide intel not just to the CS but also to law enforcement for example.

>> Yes. And this bring me to to ask also your relationship as a platform with law enforcement agencies all over Europe. uh I worked a lot with web two platform providing uh services and lening with law enforcement and I know that for a platform is quite difficult even because it's not a productive task you do is a obligation it's mandatory but you not gain profit or you not gain a reputation maybe also you you lose reputation if you work so much with law enforcement uh how how much is difficult to to discuss with law enforcement all around Europe

on this specific topic and specific argument very difficult also to understand for who is not skilled in the web ecosystem. Yes, we think that there is a huge focus on compliance and always about getting more information from the general public in order to make sure that they are not doing something wrong that they don't engage with illicit wallets for example. That's why you need to KYC in the first place that why that's why you need to provide a proof of address and and more and more information. This indeed is also um a privacy concern that always conflicts with this compliance concern.

My personal view is that we should focus also a lot on indeed law enforcement and actually tackling the bad actors in this industry. What we what we noticed there is that we are well very willing to cooperate and create a safe space. Scams don't happen in crypto only. It is a broad global concern for any financial service provider. Right? So we want to secure the space and help on developing a safe environment. So we are very willing to work with law enforcement. Sometimes what we perceive is that the um resources on that end to really go after the the smaller scammers is limited. So we are we are welcoming those requests for information so we can together keep the safe uh keep the space

safe. Public League. OKX has been acknowledged for that, for working together on certain investigations with Ze XBT, for example, this uh famous, I would say, crypto Twitter uh investigator that is also followed by huge industry leaders in in the market. So, we definitely open and welcome those. >> Last year, my presentation here at Milano was about onchain clarity and so community bounty, community intelligence and so on. I am curious h how much uh how many requests do you receive and what kind of request because in my opinion one of the risk is to be considered a sort of get watchdog of the wall environment. Maybe agencies can ask

you about activity issue taken by users on the web tree side and you are not the watchdog on what they did they they they do on the free environment. So it's if you can tell us if you can >> yeah what I can share about that is that we would welcome even more requests as long as there is something that is being done with that information. We even proactively reach out to law enforcement when we feel the need to do that. We also are willing to cooperate on certain parts, but it needs to be lawful, right?

So, we are not willing to um just share information, but if if there's a confirmed illicit action, we are more than happy to cooperate. If it's a lawful request from any agency, we also would be willing to cooperate there. So, I think it's I think it's an interesting point, but I don't think it will touch, you know, the broad consumers. As I mentioned, the resources on enforcement is quite limited. So it's not that there's a bulk of hundreds of thousands or even many thousands of these requests. It's rather a handful that require immediate attention, but we would like to see more of that uh as long as it doesn't touch the privacy of of the general public.

>> Interesting. And this is one of the aspect we will keep focus on during the evolution of your services. So we we came at the last part of this chat. uh how do you see your platform, your activity, your services in five years and in 10 years? What do you think you will become in the future? >> Yes. So we definitely position ourselves for the longer term that has been seen with our conservative marketing and growth approach in Europe before we had the right license. That is also noted when you see that we already have the three licenses to operate and just now ramp up our growth in Europe as well.

These are the MI license for crypto, PI license to move stable coins, MIT license to offer regulated derivatives. Now we just launched our first derivative products named the Xerbs, but we are definitely looking at broadening the product offering that we have as long as we have the proper license in place for it as well. We try to give people access to more and more innovation and also contribute to that innovation. So you can definitely expect more products from OKX, more product innovation and a continuous focus on a product on being a productled uh organization that really stands out on technology. That's why our company has more than 5,000 employees out of which 1,800 are product managers and

engineers. Comparing that to even other innovative companies, this is a huge chunk. The ratio is is very very big on the product and engineering side. We continue to expand on that. We also implement different ways of working with AI to speed up our processes, strength test our setup and further yeah provide innovation and technology to people. And maybe we can talk about uh brand new services. I I I can expect for example services in the identity management with with the wallet. wallet could be in considered also a sort of ID card of the users and uh in my opinion protocols

smart contract already allow to to to provide new services uh apart from the the the the web two platform. you know, maybe people can connect to your services just when they need to connect and not rely on your custody or your services and probably the the the the future will bring us in this direction. But uh don't you think is a win-win game because uh less custody, less regulated services uh bring you to more freedom to yes monitor uh help user, advise user, but let them uh choose what they want to do over the over the net.

>> We we do think it's an interesting development, but the usability needs to be at par with centralized services, right? Losing private keys is a huge concern, but also connecting or creating your first DeFi wallet. Apart from that, if you want to make your first transaction, you would today still prefer often a centralized exchange to purchase your first crypto and then withdraw it on chain. So, our main priority is focusing on creating the best experience for traders in Europe, expand on that. We're still one of the few very few crypto companies with a MIT license that allows a full new set of derivative products. And the second thing that is our priority is ensuring

that this convergence between Trefy and crypto continues to take place. As an example, we launched our OKX card where it is possible to spend your crypto with any merchant that accepts Mastercard. as another another example, we see a trend towards RWA's real world assets. Um, and we also dipping dip our toes in multiple occasions into Treadfi. A strategic partnership has been launched last year with Standard Chartered Bank for Standard Chartered Bank custody but trading access on OKX.

And even this year there was an announcement that ICE the mother ship behind the New York Stock Exchange strategically invested in OKX with the minority share and took one of the board seats globally. This clearly indicates the traditional finance interest in crypto and the crypto market being ready to cooperate with that market as well. So we want to continue to facilitate the convergence between the two to create this new financial system that we are aiming to do. I saw you you started to provide through the the the wallet. So the the no custodial uh part of your services also connection to brand new and very discussed service like

prediction market lending staking and so on. What's your position about the provision of these services uh by by uh CASP but to uh decentralized wallet >> for launching new products into the market. Step number one for us is seeing if there's a regulatory framework that aligns with offering these products. So we want to get the license, the permission to offer something first before we develop that as a product and launch that here in the European region. So I think that the regulatory availability of products is a huge determined if if we are going to proceed with something and offer that to the to the wider European public. So for that reason indeed trading is a first uh is a

first thing that we want to expand on. Then the conversions is something that we want to look into as well. And then in the meantime we talk with policy makers uh politicians and the regulatory the NCAs to see what else can be offered. But this is a very interesting interesting. Absolutely. We will see what will happen after this consultation. I would like to open the discussion also to the audience, the public is a fireside chat. So if someone want to set a question or a suggestion, we are we are here for you. Any question? Yes.

>> One or two questions? >> Yeah. Alandra, can you help? >> Yeah. One second. Okay. So my question will probably touch a lot of parts that you both talked about most importantly the fact that you first expanded in France among other countries. Okay. And how you treat privacy. So um the point is I see like an opportunity in the market um especially regarding the fact that when a person want to exit okay the market and simply either take profits or um take the

cryptos etc and >> buy the lambo. >> Exactly. And the point is that um what do you think about like possible partnerships between checks checks okay and mixers? I mean the point is that detaching your identity from your funds today is seen as only a way to mainly a way to launder money. What instead about something that actually helps people in detaching identity from funds when they want to exit. I mean probably something not exploited and then you know it just happened in France that someone sold the identity of everyone I mean to to to people and so they started like uh >> even because as I told uh the checks is

the one the only one knowing the identity of the centralized users. >> Exactly. So the point is that I see like something not exploited today in in this part I mean in from this side of the market of a possible cooperation between chises and mixers but not from laundering perspective. I mean what do you think about this? >> What we think is to ensure that we can stay in the market not just for 10 years but 20 and 30 years we need to look at the regulatory framework and comply by that. But we as one of the industry leaders definitely provide our insights and our vision between regulating the market and protecting consumers. And one of the ways to protect consumers is to

protect your identity. And you see more and more incidents happening because of either data being sold, hacked or being publicly available. So we do think there needs to be a fair balance and we do advocate for the protection of clients privacy. But we leave it up to then the policy. We can opine on that. we share that as our view and then we will comply with the regulation that the policy makers set out. >> Yeah. And if I can add just a legal bit is a is a interesting topic quite hard to solve because for example uh Roy was saying before travel lu asked to to know to manage the identity of the requesttor the the sending uh and the

receiving money and uh for example if funds come from a mixer it is a risk indicator for the platform and uh they they have to decide if accept that deposit or not because it's coming from a from a mixer. So it's one of the the the the topic to solve with the the new regulation. Okay. Okay. Our time is quite finished. No problem. No problem at all. Uh enjoy these two days. Enjoy the the event and uh thank you again guys.

>> Thank you. >> Thank you very much.