The Hardware Barrier: How to Onboard Next 100M to Self Custody

Transcript

Okay. Hey. Hey. Hey everyone. Uh thanks for finding the time. I know it's still relatively early. We had some nice events last night. So, thanks thanks for making it. My name is Stepan. I'm head of comms at Tangem. Tangem is a hardware wallet company. Um I'll explain more about the product as we move on. Um but today's uh title is how to onboard the next 100 million to self-custody.

And [snorts] mind you, it's not just any kind of self-custody. It's we taking it hardcore mode with our can hardware-backed uh self-custody, which is arguably like the safest, the purest form of it. And you might ask, "So, why why 100 million? Why that specific number?" And the truth is, um I just wanted it to sound cool. I just wanted to kind of uh sound like a you know, Brian Armstrong but with uh ginger hair.

So, um it can be any number. It can be even if it's one person, even 10, 100, as long as we manage to onboard them to self-custody, uh we're doing the right thing. And it's a net positive for the entire industry. So, let's move on. I'm going to start with this number, 12%. Um that comes from our uh report that we did with Protocol Theory. So, just 12% of US-based crypto holders actually use a hardware wallet.

I think it's a criminally low number. If and that applies to US-based holders. So, if you take the entire world, uh the number's going to be much lower because the US uh historically has been the biggest market for hardware. So, uh you might ask, "Why is that?" And it's um it's a couple of things, really. Um before we proceed, um if you can raise your hand, how many of you uh know Tangem, own Tangem?

Okay, we have a couple of people. What about hardware wallets in general? Okay. Okay. Okay. Um so, not everyone. And mind you, you guys are uh creme de la creme of crypto, if you excuse my literal French. Um so, our goal is to fix it, right? And thing is, we have to move on from the classic narrative of security. We have to think broader, you know, because people there's a big realization. People, they don't necessarily want security, they want to feel secure. And those are different things.

And the technical evolution um curve of hardware wallets has has sort of flattened over the years. So, your more than hardware wallet, it's it's pretty much safe. It's safe for 99.9% cases. I mean, you might ask, "Oh, what if I don't know, some obscure hacker captures it, takes it to some underground lab, spends a whole year trying to hack it, spends hundreds of thousands of dollars doing it. Might they succeed?" I don't know. They might. But, would that be economically viable? No. Would that be scalable? No. So, you're safe when it comes to security.

So, we need to move on and start thinking about security as the baseline. So, okay, your hardware wallet is safe. Now what? And here we come to the actual use of hardware wallets, right? So, you think of it, usually it's um kind of like a USB-like flash drive, you know, you need to plug it in, you need to kind of like put your PIN in, and it's it's a whole different thing on top of your usual stack, right? So, at Tangem, we tried to fix it.

And basically, we came up with this very simple form factor. It's a plastic card. It has the highest grade security chip in it. And it's connected through NFC. So, you just tap it against your phone, you open the app, you verify, it's super simple, and it aligns with the uh usual kind of daily stack much better because you don't you don't need an extra screen right? For that. And um subscriptions, that's happened as well in the industry. I think it's a bad precedent. Um I think that shouldn't be that shouldn't happen in our industry. Um so, we're making sure that we are safe from that.

Um so, speaking about security, I mean, of course, these specs, they matter. Um as I mentioned, we have the highest uh uh uh grade chip, um NFC I mentioned. The firmware is um cannot be updated. That's very important because the subscription that I mentioned that um our competitor did, they it actually the way it worked is overnight >> [snorts] >> the firmware was updated, and then bam, all of a sudden, it turns out that they can actually extract the private keys.

And like technical possibility is there. Of course, you they they would need your consent and everything, but the idea of it, like it's it's actually possible, right? Can't happen with Tangem. Um And it's also dust and water resistant. So, it's it's it's pretty much you just slide it into your IRL wallet, card holder, whatever, and you just go. >> [snorts] >> So, what's the main threat, you might ask. Um okay, let's say it's not hackers. So, what is it?

It's actually users. Um On the left pictured is myself um back in 2018 when I first discovered self-custody. And it's a powerful tool, right? And any powerful tool comes with responsibility. Was I quite ready for that responsibility? Um Kind of, I guess. Would I be prompted to insert the seed phrase if I was kindly asked to? Probably. Um So, if you think about it, that's the first thing that you encounter when you when we're talking like self-custody, right? Back in 2018, it was

kind of okay, I guess. I mean, the industry was much less mainstream. Um I was asked to write down 24 words. I was like, "Sure, why not? Okay. Let me grab a piece of paper. I'll do it." But, if we're if we're talking mainstream these days, you know, crypto is pretty much everywhere. I know it's a bear market, but still, if you look at everything that's happening and the level it's happening at, right? Um we need to do better, uh which is why we came up with a seedless setup, which basically means that you might you might think, "Oh, seedless setup. Oh, I know I know what it is. Like email login or something."

No. It's actually arguably as safe as it gets. So, basically, at Tangem, when you onboard, you generate your private keys directly on the secure element. So, you don't know the seed phrase, no one does. And you can't really give up uh something, you know, you you don't actually know. And if you're worried about losing your card, it comes in sets of two and three cards. So, there's always like a an identical wallet that you can use if you happen to lose the main one.

So, speaking of seed phrases again, um we'll like every now and then we get these funny accidents. Um these are just from a couple of months ago. On the left, you have a South um tax agency seizing some assets. Um they uh put out a press release with photos um and they kind of flexed, "Okay, we captured some look at that hardware wallets." And they actually put the seed phrases written down next to the wallets. And naturally, someone went and checked, inserted the seed phrase, and lo and behold,

5 million right there. >> [snorts] >> And the one on the right is comes from a video. It's a body cam footage from like a US police officer who pulled a a a vehicle and did a search. And at some point, they pulled out sheet of paper that has 24 words written down. Um so, yeah, those things happen, and it's kind of scary. Um so, okay.

Um so, security is maxed out to the reasonable extent as we discussed. Um this initial friction of seed phrases, we solved it. So, you might ask, "What's next right?" And truth is, there is so much more to be done in terms of UX. We are taking a hardware wallet from a niche product that you only happen to use every now and then for your main kind of stack, and we're turning it into a daily financial tool, pretty much.

So, we call it store, grow, spend model. I've already covered >> related announcements coming this year so stay tuned. So moving on to grow you have in the app you have several services that you seamlessly access through providers. So you can uh earn yield on your stable coins very safely through our integration with Ave. Uh shout out Ave. Um you have staking, you have swaps, lots of swaps, you have on ramps, off ramps.

And what's also cool if you move on to the spend column of this uh model um you can you can actually uh you can actually stay on chain, right? So you basically you generate a virtual Visa card for free. It's a self-custodial one so you're not giving up your custody. And you can just uh spend your crypto. You can uh pay for subscriptions. Um not the ones that I mentioned but um I don't know, Netflix. And you can buy coffee, you can do whatever, you can book flights.

And it's all within the Tangem app. Um so my point is we're moving uh this is AI generated as you can see um the prompt was give me like a primitively simple infographic. And it just did a stone age thing. I thought it was funny. I think the guy on the right is is very much relatable. Um and the idea is that we're moving from the era of cold storage as we know it into this new era of active self-custody. So cold storage is is pretty uh it moves in cycles. So you see scary um news about centralized

exchange getting hacked. Uh some of you might remember Mount Mountain Gox. Uh some of you might remember a more recent example, a lot of you actually, FTX of course. And most recently I would say Bybit. So you see those scary news, you you think oh okay, um [snorts] my crypto's not safe. I need to own my keys, all right? So you go and buy a hardware wallet, you store your crypto, you put it in your drawer. Probably the same drawer where where you keep your seed phrase written down.

And you just check every now and then. Um probably to get disappointed if we're taking this market. Um an active self-custody is is is a simpler model where you actually you get your device, you move on to this you onboard on to this store grow spend uh model that I just described and you the result is you actually use your hardware wallet every day and it's frictionless, it's seamless. So you might you might say oh okay, so you um my seed [snorts] phrase is fine like I I know how to use it. Um you just um I don't know, created a narrative in

your head and um whatever, you know, seed phrases are fine, hardware wallets are fine. Um there's proof that it it's actually uh an existing product market fit. So our annual revenue doubled to a [snorts] 60 million. Uh a huge chunk of it actually came from fees for in-app services. So it's not just hardware wallet sales. Um and importantly um monthly active users grew by 50%. And >> [snorts] >> um yeah, that's uh screenshot of the story that The Block did on us a couple of weeks ago.

Um so here's your living proof that the model is there, it actually works, and there's big demand for it. But job's not finished. Um there's some data that I wanted to feature there. Um I scraped it last minute because I was like oh you know, I don't want to spoil too much of the report that I teased in the in the beginning, the one we did with Protocol Theory. But it was a data point that that again uh proved uh this this whole narrative and there's a lot more in store uh we have prepared at Tangem.

Um there is so much work to be done and yeah, let's just crack on and oops, where's my last slide? Thank you. Um let's just um let's just um stop gatekeeping self-custody, let's stop gatekeeping hardware wallets and make them into like actually usable tools that you use every day along with your smartphone. It's like a natural extension. So thank you so much. >> [applause] >> Okay. Um we have some time left so if you guys have any questions I'd be happy

to answer. Okay, no questions. Perfect. Thank you everyone. Thank you for coming. Thank you. >> [applause]