Regulation as Infrastructure: Building Trust & Scale in Digital Asset Markets

Transcript

Okay. Um well, hello everyone. Um So. Sorry about that. So, I'm going to talk to you guys about regulation. And to start, regulation is infrastructure. And I want to start by saying something that might even be a little uncomfortable in this room. I love regulation. I know. Stay with me. My name is Ophelia Snyder.

I co-founded a company called 21 Shares in 2018. Built the business from 0 to 12 billion in AUM, about 175 to 100 million in ARR. A 120-person team with offices and regulatory infrastructure in three countries. And built to a significant exit last year. So, how did we do that? We did that by building regulated products. In a regulated structures for regulated investors at a time when most of the industry thought that was boring and probably a terrible idea.

And I'm here to tell you today, it was actually the only way to do it. And more importantly, I'm here to tell you that the thing that felt like a constraint back then is now the single biggest competitive advantage available to anyone building in the space. Regulation isn't a gate. It's not a ceiling. It's a base layer that everything else gets built on.

And fundamentally, that's what this talk is actually about. Oh. So, before we get into the argument, I want to acknowledge something directly. I'm guessing that a lot of people in this room are not new to this industry and likely built things during years where the word regulation was largely synonymous with enforcement action.

When the only communication you ever got from a regulator was a subpoena, a lawsuit, um a letter if you were lucky telling you you were doing something wrong and that you absolutely needed to stop. And it was a time when the rules of the game, if you can even really call them rules, were build fast, get big, get acquired or get distributed enough that nobody can touch you.

And well, obviously that's not a great way of doing things. I I was in that environment. I completely get what it produced. What it produced is a very reasonable and rational reflex. The regulation is inherently adversarial. It's there to protect incumbents. >> [snorts] >> It's there to punish innovation. It's there to slow down anyone who is building things or moving fast enough to do anything

that matters. That reflex wasn't wrong. Um it was accurate and an expression of extremely real conditions. But now it's more of a trap. And here's what's actually true about how technology, including financial technology, gets adopted at scale. Not just crypto, but everywhere. The internet did not eliminate banks. It became infrastructure inside of banks that enabled their core business.

Mobile payments did not eliminate cards. It became a layer on top of cards that allowed them to actually operate more effectively. Um if you want to go broader, streaming did not eliminate television. It became a new distribution model for content. And digital assets and on-chain finance are not going to eliminate finance. They are the natural next layer in the next evolution of this industry. And when that happens, and if you kind of look at the history of financial innovation, it really plays out the same way. Which is that adoption actually follows regulatory clarity, not the reverse.

>> [snorts] >> Um and I was listening to some of the remarks earlier and they were they were kind of getting at that. You know, we we've said the, you know, adoption is here, mass adoption is here, the institutions are here or they're coming for a long time. But ultimately, you really can't have that until you cleared this hurdle. Which is the need for regulatory clarity. Regulatory clarity isn't the gate at the front door. It isn't, you know, a gate you need to go through or something you just need to get over with. It's actually the concrete under the building. It is the base that absolutely everything in financial industries, actually in most industries is

built on top of. And right now, for the first time in the history of digital assets, we're actually pouring that concrete. We're we're laying that foundation. And I think that's something that's quite undervalued. Now, let me give you a mental model I've been using for years [snorts] that I think is genuinely helpful here. You can think of financial regulation as a layer cake.

And I think once you kind of look at it this way, a lot of what we're seeing in the market starts to make, I think, more sense. The bottom layer, the base, is classification. Answering the really kind of somewhat semantic question of what is this thing? >> [sighs] >> Who's responsible for it? Those are often pretty linked. I think in, you know, most of us have been part of these conversations, right? Is is crypto a commodity? Is it a security? Is it a currency? Is it a payment instrument?

And while yes, that may sound like a very dry semantic question, it's actually not at all. It's the basis of the entire game. You you cannot regulate something without first defining it. Until you have a clear and maybe most importantly legally stable answer to that question, you can't build anything else on top. You can't write custodial rules for something that you can't define. You can't build a product structure on top of something that has no legal category.

You can't pass an institutional investment committee, not one, not anywhere in the world, on the basis of legal ambiguity. So, next there's a middle layer. Which I like to think of as governance. Um which is once you know what the thing is and you know who's responsible for making the rules of the road, the next question is, okay, well, how does this thing actually operate? And what rules are we really going to put in place here? And that can be a pretty wide range of things. That is issuance and custody and distribution and trading and reporting and who can access and how they can

access. But that's still only part of the story, right? And it's pretty linearly built on that categorization. So now you have what is it and what is the rules you're trying to actually make for it. The top layer is interoperability. [snorts] And for me, it's actually, I think, the most important one. How does this new thing that we've now defined and built rules for interact with every other piece of legislation that's ever been written?

So, a way to think about that is how does it connect to everything else? How does a tokenized bond interact with a untokenized bond? Does it change the rules for bonds? Are they both the same thing? Is it now just bonds all have one set of rules? How does a stablecoin sit inside of existing bank regulation? How does on-chain settlement work with existing settlement infrastructure and, you know, regulatory requirements around transfer agency and record keeping?

That's where regulation goes from being kind of a stand-alone thing to becoming part of a cohesive framework. Now, the problem with crypto is that for most of its life, it actually never even had a base layer. You you couldn't define it. You couldn't legally categorize it in any meaningful way. Every regulator had a different answer. The SEC said it was a security, the CFTC said a commodity, Treasury said currency, kind of sometimes, but not always. And and no one agreed. And because no one agreed, and this is not just a US story, no one agreed anywhere. Um institutions couldn't act.

Not not because they were afraid, and I think that can often be the narrative is they were afraid to kind of step into this space, but because actually they had no legal ground to stand on. And that's really important for these larger institutions. >> [snorts] >> Now, there's been a lot of talk in the last couple of years, and quite frankly, especially in the last couple of months, around stablecoins. And I want to make a point around sort of the stablecoin ecosystem specifically.

Rules for stablecoins aren't actually about stablecoins, for the most part. When you define what a tokenized dollar is, or a tokenized, you know, Swiss franc or euro, you are actually laying the groundwork and the legal language that will eventually govern everything else. Who can issue it? How it's backed. What recourse investors actually have against the people who are issuing and manufacturing these products.

And that is going to impact how tokenized stocks work, how on-chain bonds work, how commodity trading is going to work, how we can bring real-world assets on chain, and ultimately how we can develop new on-chain financial products. And it's a wonderful example of how every piece of base layer clarity that you develop sets the precedent for everything that comes after it. The base layer is what everything else depends on.

Get it wrong, and the whole cake collapses. So, which brings me to what's actually happening right now. And I want to spend some real time talking about this, not because people haven't heard about these things, but because I think it's being severely and significantly underestimated, even by people who are following this space closely. For the first time in the history of this industry, we have a serious, coordinated regulatory framework that's built across multiple major jurisdictions simultaneously.

Not enforcement, not hostile ambiguity, not regulatory guidance that contradicts itself from one agency to the next, or from one country to the next, um actual usable frameworks. Um but we can talk about the GENIUS Act first. This is the first serious federal US attempt to define what a stablecoin is. Reserve requirements, licensing pathways, oversight structures, basic stuff. Again, matters not because of stablecoins. It's helped It's helping to establish that base layer language that will govern everything tokenized that

comes after it. And maybe most kind of interestingly, it's the one of the first examples we've seen in the US of a piece of legislation that's being developed with genuine industry input. And and that change of posture is quite significant as well. So, it shows that the era of regulation handed down after the fact is over, at least for now. Then you have clarity, which goes after the hardest question directly.

What's the line between a commodity and a security in digital assets? That question has essentially paralyzed major institutions that are interested in being in this space for a decade. An answer, even if it's an imperfect one, is worth way more to us in terms of adoption, quite frankly, than even a bull market. Now, getting beyond the US, which has obviously been pretty dominant from a headline perspective, you have MiCA, which is finally live.

It's the most comprehensive regulatory framework anywhere in the world. You have unified licensing across all 27 member states of the European Union. You have consistent standards for service providers, for issuers. You have real investor protections. It's not perfect, and and no regulation ever is, but it exists, it's consistent, and it gives institutions a legal basis to act. And that is genuinely new for crypto.

If we want to go even broader and look at the rest of the world, Switzerland, the UAE, Singapore, the UK, you now have multiple jurisdictions that are in active competition to build clear, functional frameworks. That competition is fantastic for us. A race to the top on regulatory clarity is not a threat to innovation. It's the precursor for scale. It's what we need to finally allow for that institutional unlock.

And what's happening right now is that base layer is finally getting built. That definition of what is this, how [snorts] are we going to set up this infrastructure. And the question for every builder in this room is is actually not at all whether you agree with every provision of each of these acts. I can guarantee you not everyone is going to have the same opinion about that. The question is, are you building on top of this foundation, or for what existed previously? So, the pendulum swung very, very fast here. And I want to get personal for a minute. So, 5 years [snorts] ago, I spent the better part of a year trying to get regulatory approval for products

in the United States. 5 years ago. Um for those of you who might remember, we didn't get regulated products in the US until several years after that. ETF wrappers, regulated product structures, products designed to be consistent with regulators' own publicly stated policies, and what I got back was not constructive. It wasn't feedback I could work with. It wasn't even like a clear no with reasons attached. It was basically just obstruction. And in some cases, quite frankly, really unpleasant. And so I want to speak directly maybe to people in this room who know what I'm talking about.

In your own versions of those meetings, um spending years building in a system that wasn't in designed to engage with you. And we all learned how to operate without maps, without clarity, without any reasonable expectation that the rules would be applied consistently. And so we all developed a posture that made complete sense. We optimized for survival. We were very redundant in the way we built. We built backup plans for backup plans. We developed what I'd call a institutional reflex that was drilled into these organizations because in that environment, that was the only way to keep the lights on. Wasn't paranoid. It

was actually a rational adaptation to real conditions. But here's the thing that I'd like to reflect on. When you build an organization under those conditions, that posture doesn't stay in the room where it was formed. It builds into everything, how we train people, how we build processes, how we think about risk, how we engage with partners. And now, almost overnight, that environment has changed. We've gone from companies being de-banked to governments actively soliciting industry input on legislation.

Every major financial institution is running a crypto strategy. The regulators who were unreachable a couple of years ago are now holding public comment periods and actually incorporating feedback. The transition between these two worlds is incredibly complicated for an industry to make. Organizations being built for essentially regulatory survival are now being asked to be on offense. And that gives a really interesting advantage. We know what the system was built like, and we know that we can actually engage, and we can update those operating models for this new environment.

Now, when the Bitcoin and Ethereum ETFs were approved, a lot of people treated it like a destination. Institutional adoption unlocked, check. I want to push back on that framing. The ETF was real, and it mattered. It gave a regulated access point where people could actually invest, but it was quite superficial. It's investment level adoption. That is entirely separate from the on-chain world. We're We're not really using plumbing, right? This is not It It's superficial. The next thing that will come will be a real transformation. The convergence of TradFi and on-chain infrastructure.

Now, to do that, it requires, and this is the part that I think is important, it requires transparency, accountability, and genuine conformity to the norms of financial markets. Not watered-down minimum viable compliance, but the real thing. Auditability, investor protections, clear liability structures, the things that make it possible for a pension fund or sovereign wealth fund or major um financial advisor to put this infrastructure into their critical paths.

And this matters sort of beyond sort of an institutional story. When you build infrastructure that meets those standards, when you build rails that institutions can actually trust, you unlock access. More participants, more jurisdictions, more people who currently can't use the financial system at all. The ETFs were the beginning, and the rails are really the destination. And so, what I'd like to leave you with is sort of three main ideas.

Treat regulation as a feature, not a constraint. Ship compliance before you need it, and build architecture from day one. Two, engage before you are forced to. Show up in the rules where the rooms where the rules are being written. And three, build for rails, not just the products. And I think with that, I am all set. So, thank you so much. Oh god.

Oh, there we go. My goodness. Well,