Shaping the Next Phase of Digital Asset Markets

Transcript

We're going to be talking about shaping the next phase of digital assets. Joined by me is Darius Sit, QCP, Ammani Ferrante, Backpack Exchange. We've got Wen from DBS Digital Exchange. Now, maybe give a quick 30 second introduction to the audience. Maybe start with Darius, please. >> Sure. Thank you. Uh, I'm Darius. I'm the founder of QCP. We are Asia's leading digital asset trading partner. Uh we help clients with uh investment and hedging solutions in the digital asset space.

Uh hey everyone, my name is Armani Ferrante, founder CEO of Backpack. We are a self-custodial wallet. We are a global derivatives exchange and a group of 10,000 mads all around the world. Thanks for having me. >> Hi, I'm Wikin. Um I run I'm the CEO of DBS digital exchange. Uh we set up in 2021 and we are the first world world first bank back exchange and DBS is behind the DBS exchange. >> Awesome. We've got a mix of Tradfi and cryptonative exchanges on here. Now first question, what was the aha moment that kind of got you guys building in the crypto space? So I started in the

crypto space in 201617 doing just arbitrage trading. My background is uh similar to weekend we know I was a currency trader and and particularly in Asian currencies which saw liquidity dislocations and created arbitrage opportunities. So that was the aha moment for me realizing that it's very similar to other asset classes in terms of uh in terms of liquidity and market structure. So I saw it as a very frontier asset class and the opportunity that that I thought would would be is the evolving market structure and and and that's what we've captured right. So when we started it was only spot trading dislocated liquidity uh but the but it

has gone from frontier asset class to emerging now to something more of a mainstream asset class and and and uh I think it will continue to to evolve as well and that's where the opportunity continues to be >> awesome and Ammani >> yeah for me the aha moment was pretty simple it was uh I was sitting at Phil's coffee on market street in San Francisco read the Ethereum white paper got nerd sniped and haven't looked back since the concept of a of a world computer is perhaps the most compelling and ambitious thing for a young engineer to want to work on in early 2017. And yeah, that was really kind of the moment. It was it was definitely Ethereum and the promise of this global distributed system operated by everybody, you know, by no one.

>> Awesome. Redpilled by Ethereum. >> Yeah. >> And weaken. So similar to Darius uh I was trading FX and you know cryptocurrency has the has the word currency behind and I thought you know I think it's in my territory to to to matter with it and to know how to trade in it. So we we set up a project group and you know we study what's going on. I think what what I was really intrigued by it is the is the blockchain technology behind it and empowering it. So with that you know I I I basically feel that this blockchain technology will be the the next frontier backbone for our financial markets itself. So you know all the advantages that comes with blockchain be the 24/7 atomic settlement uh be programmability uh transparency

and immutable data all these will be the future for would be the feature for future of our financial assets and that got me really really excited. Yeah. And I guess for DBS as well, you guys are a traditional finance. Uh it's a bank, you've got a custody arm, now you've managing the exchange arm. From an institutional client perspective, what's the most surprising attitude you've seen from them uh towards crypto? So from from where we where we see the clients I think we have we have set up not only the with the exchange we have the custody we have the customerf facing

group where which comprises of the fixed income uh financial institution group the private banking group and and um and the institutional group. So all in all we form this will form our digital asset ecosystem and that's where we service all our clients and right now our institutional and and institutional clients uh and we have private banking clients on on our on our exchange. If you look at the institutional clients we comprises of um crypto companies, exchanges, OTC traders uh at the same time miners and sovereign wealth funds.

So we have good at it. On top of it, we have brokers that is using our platform. So we have a wide series of client base that's using our current currently using our platform. >> Yeah. And I definitely think um with the the private banking distribution that you guys have. It's a diversified customer base that might not be able to to kind of tap into a cryptonative exchange such as like a backpack. So with exchange space is very saturated at the moment like how does backpack differ themselves and how is it what what moat do you guys provide?

>> Yeah, it's a great question. It's 2025 and who would have thought that uh a new exchange would pop up on this side of the world and the most saturated and the most competitive exchange market in the world. Um maybe some for some context, we've done overund I want to say 70 billion in volume over the past two years. Today we're doing about two two and a half billion in uh 24-hour trading volume across spot and derivatives. You know, when we launched in 24 and 25 and when we set out to build the exchange in 23, what we really wanted to build was that really um incredible crossc collateral cross margin experience that um I think a lot

of people saw uh and loved out of out of FTX. And so we were really the first exchange in a post FTX world that uh went live with this uh in terms of like all the new exchanges uh uh that launched. And we took it actually a step further where not only do we have spot spot margin borrow lending perpetual fuses all cross margin and cross collateralized to a a single unified portfolio but the portfolio is also backed by a real time transparent money market. So your entire portfolio is earning yield um while uh uh uh earning collateral or acting as collateral for uh uh your kind of a derivatives portfolio. And so for folks that really

care about capital efficiency um and they really care about really you know you know cross margining um we found a lot of traction uh amongst those protraders um and so I really think it boils down to kind of that cross margining experience and you tie that with the wallet it's a pretty compelling all-in-one kind of unified Apple-like experience where we don't treat the wallet any differently than we treat the exchange. It's a single app. It's a single login. Um, where you can get access to any asset, any app, any protocol on any blockchain, whether you're a trader looking for kind of a capital efficient margin system or you want to use like the rich burgeoning

onchain DeFi economy. Um, and so that's what we have to offer. And and uh, yeah, that's kind of a bit of a product. >> Yeah. Abstracting that away and trying to to make it a more seamless user experience. Um, and for Darius, QCP is a major player in the options and structured markets space. What are you seeing more appetite for hedging or speculation? Uh, what does that tell us about where the market is also headed? >> Yeah, it's a good question. Uh, I just realized I'm the only person on the panel that's not from an exchange.

Um yeah, the the space has evolved over the last uh eight years I've been in it and and it's uh gone through many cycles. I would say that uh you know for us the few visible things that that that demonstrates the evolution of the market. One is the volatility of Bitcoin itself. So if you look at Bitcoin itself the the um like when I 2018 probably the it was about 200 to 300% implied V uh and it was and the implied V had a huge premium over the realized V meaning that uh the options market was very new a lot of the

flow was very speculative um and uh you know a lot of the the flows were I guess not professional traders Right. So people who are looking to express directional views. So that two 300% V has slowly declined to uh 40 VS. So 200% to 40%. That's a demonstration of the maturation of the asset class. So it's a result of changing behaviors right. So we went people the investors and and participants in the space go from being speculative to chasing yield uh hedging uh as well as putting on more you know

looking at riskreward rather than than pure uh uh convexity. So I think uh you know it's also a demonstration of the types of of players that have come in. So like you mentioned you know more institutional players less speculators uh you have like we can mention as well sovereign wealth funds uh miners who come in so you know that that's a very key part of the market structure. Another interesting part of the market structure is the um the the forward curve back in the day pre2020 the forward curve was at in backwardation meaning that the future price of bitcoin was below the spot price and that's a function of guys selling you know miners mining bitcoin and selling the their hedging their positions forward but

right now you have it the other way around right so it's an expression of of both um you know I guess a bit more similar to gold where there's a cost of carry of it involves but yeah so I think the market will keep evolving um and I think the key sp the key thing that that would make it bigger I guess would be the the growth of proper credit I think that's something that that that you know exchanges have a big part to play banks have a big part to play but a credit market where you have a proper curve uh with bonds trading credit trading I think that that's that's what's going to happen uh going forward >> yeah That's that's an interesting point actually. I think when we're talking about macro as well with rate cuts

coming in um money supply is going to increase M0 we saw this postco and that drove on risk assets huge influx of interest going up the yield cut as well as going out pushing out into that that risk on mindset. Do you think DeFi summer is going to be back and who do you think are going to be the beneficiaries if it does come back? We will start with uh >> I think crypto assets will be similar to the traditional assets. You will go through the boo the cycle of boos and bears. Um to me I think what's important

is that you have the right market liquidity to and the right instrument for you to manage your risk and most important of all you must have the the right platform a trusted and safe platform for you to invest in. So to me every investors need to navigate crypto assets like any traditional assets where they have all the boo and boo and best market cycles. Yeah, we uh definitely load a lot post FTX in keeping your assets safe. Um maybe Ammani on whether or not DeFi summer is going to be back.

>> Yeah, it's a great question. I mean, I think it's impossible to say. The industry has obviously like become like night and day difference between now and where it was in summer of 2020. I think we went from obviously an extremely stringent and ownorous regulatory regime in the US that kind of set the tone for the entire world to swinging to the other side of the spectrum and there's continues to be a ton of progress with respect to not just various regulatory regimes around the world whether it's you know in Japan where there's a bunch of tailwinds you know taxes are going to go from like 55 to 20% that's kind of the expectation

cryto is going to get reclassified into a new regulatory regime. The prime minister is now going to uh crypto conferences and we're seeing a lot of what we saw in the US uh start to happen there. >> That's some for the audience if if you're not listening to what Marty just mentioned. >> Do your own research. This is all kind of speculation but it is an expectation. Uh in the US obviously you have a ton of progress on the uh policym side of things. Um obviously you have the stable coins having their moment. uh the Genius Act uh coming into play and now this whole conversation around market structure where there's this open question of what does it actually mean to be, you know, in DeFi? What does it mean to

be a centralized exchange or a decentralized exchange? What does it mean to issue assets and tokens and to build protocols on all of these blockchains that have popped up around the world over the past, you know, decade? You see per Dex's having their moment right now. You see all of this in the midst of, you got to call a spade a spade mania, uh, which is what we're seeing today. I would argue we are in DeFi summer 2020 right now and it just might not feel that way already. Um, there's plenty of crazy stuff that you can point to and ask, "Wow, that doesn't really make sense." And you kind of scratch your head. And the world is very much on pause at the moment while some of these policy questions become

answered where we know we swung too far to one side of the spectrum and we know that was net very very negative for the industry and for the broader world. And now we are in this collective like journey as a set of nations and as a collective species and collective consciousness depending on how abstract you want to go. as we wrap our head around what the implications of crypto and blockchain and internet capital markets actually means. Because with every new technology, whether it's financial markets kind of in the early 20th century, whether it's the internet, uh uh uh whether it's crypto or AI, the world needs to wrap its head around it

and figure out how do we harness this for the outcome that we want. And right now we're certainly in the middle of figuring that that out. And once you get the some of these policies kind of in place, once you get some new legislation in place, um, and you get some of these things actually defined, then entrepreneurs, regulators, founders, people in the space actually know the rules of the road. They know what are the constraints that they can operate in. And that ultimately is what unleashes creativity and it unleashes growth. And so I think right now it's kind of like it might sound silly to say, but I kind of feel like we're all chickens with our heads cut off.

Everybody's kind of like running around uh uh uh and and and innovating as fast as possible, but as soon as there's constraints, productive constraints applied, then I think we'll see a lot more directionally productive growth and where we want to go. So uh it's a really special time. Um, uh, I think it's a really precious moment for everybody in the industry and, >> uh, it's not exactly DeFi summer, but it's, you know, directionally kind of rhymes in various ways. >> Yeah, it it doesn't really feel like the DeFi summer that we had back earlier in 2020, 2021, but history doesn't repeat itself. It might rhyme. And uh Darius I think seconding what Amani said uh DeFi

summer is here but probably in a different way maybe less speculative less hype but if you look at the volume on perexes if you look at the volume in D5 credit it's it's larger than it's ever been before in in in multiples right so a hit like $30 billion in TVL or something I mean it's it's it's large and much larger than it was in the previous D5 summer what I think is happening ing is that the definition of D5 will start to change uh as as alluding to your point as well as as the lines between D5 and CFI start to get blur. And what do I mean by this? uh you you start you're going to start to see D5 expand

more than just D5 or CFI in crypto assets but into traditional assets as equities gets get tokenized as more and more assets become go on chain you're going to see DeFi methods of margining defy methods of settlement uh defy methods of trading being applied to assets across the entire spectrum So that's what I mean by it will be the definition definition will change from D5 to onchain settlement RWAS but but you know D5 will be expanded across asset classes. So D5 will no longer be a crypton native specific thing uh but it will be a concept that is uh applicable uh to trafi as well. Yeah, we've taken a

lot of whatever's happened in Tradfi and just tokenized it and I mean money market funds these kind of concepts and tokenization itself is such a buzzword. So I think we can what what do you think about that and is there any traction? There's tokenized bonds, real estate etc. All these kind of assets but are we seeing institutional buy in yet? Well, the key question to ask is what's the problem to solve for? So to me, um, if the real world asset is trading in a manner that customers are happy with, then there's no need for us to tokenize

the assets. Um, so when we look at a product, we always ask ourself what do our client needs? So if they want an instant settlement is that what they want or the product in the real world itself does it give them any pain points. So to me uh if we are we are serving the needs of a client and client demand is there that is the area that we we think that tokenization will make a lot of sense. Hence um we we work on tokenized money market fund because we feel that this tokenized money market fund is if it is denominated in a stable coin that will give us that will allow the the digital

asset player to actually buy tokenized money market fund with their stable coin when they don't need the stable coin and as it is stable coin has no yield and they can earn some yield before they decided to sell the st the money market fund token for the stable coin itself. So to me I think I think that is where the demand side is and and we work very hard to try to put the product forward. Uh at the same time money market fund is been tokens are being seen as a collateral ecosystem. So funds and institutions are actually using u money market fund tokens as part of collateral basis. So to me that that this is the

area where there is uh demand and and structurally it solve a lot of problems as collateral need to be posted sometimes during Saturday and Sunday and you can you need to post a collateral on a 24 by7 basis. So it it itself will solve a real world problem. uh at the same time we are also looking at private shares tokenized private shares for that I think a lot of our AI clients uh in terms of private uh illquid private shares un unlisted private shares um these type of investments are not accessible to them in the past most of these investments are access more accessible to the to the institutional investors um so we are bringing this to to to the exchange to be distributed to

our clients um it itself can be fractionalized and and and the clients can actually trade and and sell off part of their investment in a in a smaller amount. Hence, better manage the market risk itself. >> Yeah, it's definitely about capital efficiency and getting being able to to borrow against your assets using that as collateral. You've seen that with um even tokenized um GPU, so private credit kind of markets within the GPU space as well. that's that's been growing from I'm going to switch channels a little bit from a regulatory arbitrage perspective. Um I'm Australian. I moved and left to Hong Kong for tax reasons and uh you know over the years I've seen

different crypto companies trying to look at that regulatory arbitrage and moving from the US over to to Singapore, Hong Kong, Abu Dhabi, Dubai. Is that regulatory arbitrage, does it still exist? And where do you think is the most attractive place for builders and people who are setting up crypto companies? >> Early in the life of the company, when we decided to take a regulatory path, we actually asked this question, right? Where's the best place to get regulated? What's the um journey going to be like?

I think our thesis was that eventually every jurisdiction is going to be regulated. So the decision to about where to uh get regulated became more of a sequencing sequencing decision meaning like which regulator is more progressive or suits the business better uh but with the thesis that eventually everyone's going to be regulated in the same way at some point. So the way we approached it is number one get regulated in Singapore because I I live here um and I want to continue living here and uh and and also Singapore had a very specific regulation around uh you know payments spot trading

and it was clear uh extremely difficult. It took us like five years to get regulated here but but um you know eventually we get it it becomes a anchor for for that segment of the business. The other place that we decided to get regulated in was Abu Dhabi uh ADGM because they for us it was interesting because they saw crypto as part of the broader capital market meaning that they didn't see it as a carve out so you know it was a it was a license to get for to be able to do everything Bitcoin FX rates equities all together which is how we which match how we saw crypto as well. Um and you know these are the two anchors for us. We've

opened an office in New York and uh you know I think we're going to explore regulation there too. Um you know given the the the vibe change and some of the additional clarity there. So again it's more of a sequencing thing than than you know arbitrage specifically. >> Yeah definitely. And um I think I guess Ammani you're based over in Tokyo, Japan. the is there a particular positive headwind that you're seeing there that's coming out? >> Yeah, it's a funny question because we moved to Japan for the exact opposite reason of regulatory arbitrage. We moved it precisely for the purposes of being next to the regulator so that we could get the license. Um I mean I think I'll say this that I think there's various forms of thinking

about regulatory arbitrage. there's where are you doiciled and how can I build a really good relationship with a really progressive regulator to actually push the space forward and and do the right thing. Um, and then there's also regulatory arbitrage in the sense that, oh well, you're on the bleeding edge of technology or, you know, you're at the edge of the Overton window or, you know, the world's wrapping its head around a thing and it doesn't really know exactly what it actually means and the rules and uh, regulations aren't defined yet as a result. And I think as crypto continues to grow and as the onchain economy continues to grow and as more centralized and traditional

regulated players come into the space as these worlds converge um we are in this momentary period of to put it uncharitably regulatory arbitrage where we are just figuring out exactly you know uh uh what this all means like real time settlement, cross collateral, not just crypto assets, but what happens when you start throwing securities into the mix and I deposit in my Apple stock and I withdraw dollars and now I have an open borrow open with real-time settlement for anyone to use around the world and these are really compelling technologies uh for genuine like steps forward for modern finance.

Um and I think you know regulatory arbitrage can be thought of through a negative way and there certainly are negative aspects of it but there's also a lot of very positive aspects of it which simply you know you can look at it through the lens of just you know innovation and uh uh whether it's Uber's you know taking over taxi cabs or crypto eating all of finance I think you can look at it through a similar lens and so there's a ton of like really compelling new things being built um in different parts of the world and it'll all kind shake out kind of uh hopefully on average uh in a positive way. But that's kind of my framework for uh thinking about it.

>> Yeah. And I guess >> I would like to add on on Darius's point. Um I think to me it's a matter of a strategy for the company. If QCP sees the value and wants to serve institutional clients, uh they will see the value of getting license taking the the trouble to apply for license in a reputable uh jurisdiction and financial hub as Singapore. and and and he he will go through the effort tough effort and their time taken and resource taken to to get the license. Whereas some companies uh where uh they are unable or unwilling to invest that time and money uh they will look for legis they will look for jurisdiction where it better

suits their strategy. So I think it's a matter of the strategy. >> Yeah. I mean, Singapore and Japan are difficult jurisdictions to you could argue to to get regulated in. And um I guess all you guys have have chosen these difficult jurisdictions for a reason and it's not necessarily an arbitrage. It's um getting the right regulated approach way through so that your your customers can also benefit. Um, just quickly on time, so maybe in one sentence, what's the biggest crypto misconception that people around you always always see in one sentence? Just very quickly, Darius.

>> Um, I think people misunderstand crypto as a speculative asset class. I think that the real disruption of crypto is on the settlement and margin layer. >> Amazing. Ammani, >> wholeheartedly agree. I think the other thing I would say is a lot of people think of crypto as a solution looking for a problem when in my view crypto is purpose-built technology to improve financial systems all around the world. And as a result, we're going to see crypto not only apply to crypto assets, but we're going to see it apply to all of finance in every corner of the world. And uh that's very clearly the

direction the whole industry is going in. Perfect. And >> so for me I think market prices there's wrong assumption is that market prices are are basically related to technological advancement or the the ecosystem adoption. So you must understand that market prices are based on on narrative and liquidity of the market and the flows in the market. It may not have anything to do with the blockchain underlying and the technology advancement underlying and that may take many market cycles for it to reflect on the price. >> Wonderful. And uh that's that's it. Last panel of the day. Thank you to our panelists.

>> Thank you. Thank you.