Asia’s Opportunity to Lead Crypto Regulations
Crypto industry’s interaction with regulators is important and quite common in Asia but missing in the US, says Brooks Entwistle of Ripple Labs.
Ripple Labs Managing Director and Senior Vice President of APAC and MENA Brooks Entwistle is bullish on Asia and sees the region leading cryptocurrency regulations for the rest of the world.
Will strict enforcement actions against crypto in the U.S. drive companies to “friendlier” countries such as Singapore and Hong Kong?
We dive into all that and a whole lot more in this episode of Word on the Block with Forkast Editor-in-Chief Angie Lau.
- One-way regulations in the U.S.: The interaction and time spent with regulators is invaluable. In most parts of the world, we can do that unfettered. Regulators welcome that interaction here in Singapore, up in Tokyo, in Switzerland, in the UK – we’re part of that dialog. You are on panels, you’re in rooms with the regulators talking about what we’re seeing, what we’re learning, and it’s a two-way process. That’s clearly not the case in the U.S. right now as it relates to our ability to be part of that process.
- The positive case for CBDCs: There are certain countries that are far down the road – the digital yuan in China, others. But there are many emerging countries that are maybe smaller, that may have fewer resources, that may have different issues they’re solving for… There is no question that digital currencies are going to be a part of the landscape going forward, and every country has to have an answer for their own constituents as to what it will do and how it will impact and most importantly, we think, in the positive case, how it can really drive economic growth and financial inclusion.
- Ripple’s growth outside the U.S.: We are building quickly and innovation is happening outside the U.S. We, as a company, added 300 people last year, with the majority of them in the international markets. The bulk of our business is outside the U.S. right now. The take-up of some of our most innovative products is outside the U.S.
- Asia’s crypto policy impact: That’s one of the beauties – that regulatory impact and regulatory innovation or leadership can happen anywhere and that’s where we’ve got to build around that. As we talked about earlier, make sure and interact with regulators that are willing to interact with us and help that journey along the way. I’m a believer in cover, and I have responsibility for each of our regions around the world on the customer front. So, I’m neutral from that perspective. There are lots of great opportunities elsewhere in the world. We happen to be connecting today in Asia and it does happen to be on the fintech and blockchain and crypto side in, I think, the fastest growing, most innovative place in the world.
- APAC driving business growth: Asia-Pacific is our biggest market, and that is not true for every Silicon Valley-based technology company. It’s highly unusual, actually. When you wrap in the mega region that’s run out of Singapore, which includes Dubai and the Middle East and South Asia, our joint venture in Japan and of course ANZ, when you put all that together, it’s well over the majority of our business volume on the network and uptake of our product, on-demand liquidity. So that actually is really encouraging.
Angie Lau: It all started back in December 2020 when the U.S. Securities and Exchange Commission sued Ripple Labs for an alleged US$1.3 billion unregistered securities offering.
Since then, the SEC took action against the file sharing and payment network LBRY, contending that it had sold LBC tokens as an unregistered security. LBRY just lost the case, but the judge said that his order does not apply to secondary market sales of tokens.
Does this mean that tokens sold on crypto exchanges will not be defined as securities? Could this affect Ripple’s lawsuit? Is a court decision finally imminent? Whatever it is, it all boils down to that one question: Are cryptocurrency securities?
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It’s what we cover right here on Forkast. I’m Forkast Editor-in-Chief Angie Lau.
Well, today, we are in conversation with Brooks Entwistle, senior vice president of customer success and managing director of APAC and MENA for Ripple.
Brooks, welcome to the show. We just got to hang out a little bit together in Davos, where the world convened to talk about some of the biggest issues in the world today and certainly on the promenade there in Davos in Switzerland. There was still a lot of talk about crypto and digital assets and the like.
The industry wants transparency and regulatory clarity. But where are we heading with the SEC versus what seems like the entire crypto industry? We have heard a lot of talk since FTX’s collapse, especially from the SEC and especially from U.S. regulators and policymakers. But where do you think this is headed?
Brooks Entwistle: We agree. The interaction and time spent with regulators is invaluable. In most parts of the world, we can do that unfettered. Regulators welcome that interaction here in Singapore, up in Tokyo, in Switzerland, in the UK – we’re part of that dialog. You are on panels, you’re in rooms with the regulators talking about what we’re seeing, what we’re learning, and it’s a two-way process.
That’s clearly not the case in the U.S. right now as it relates to our ability to be part of that process. That does impact the U.S. long-term for sure on the innovation front. But again, back to the Davos situation, that is a place where you can actually have some of these discussions and have them in a way that is constructive. It’s really on us, as an industry, to prove utility and why crypto matters, why blockchain matters, and what it can do for countries, for citizens, for businesses, for big world problems. If we can prove that case and make that case in a strong way, then regulators will follow and come along. But if we’re viewed as an industry that’s not listening and not being a part of this, then we’re in trouble on that front.
So I do think that this piece of it in 2023 – can we continue dialogs and where are our markets where we have a receptive audience on that front – will be very important.
Lau: One thing that I thought was so interesting was that the jurisdictions and countries themselves and the policymakers themselves are also working within the framework of their own governments, working with the technology.
So, you talk about enterprise use cases and utility. I was sitting on a panel with some central banks talking about CBDCs, and it is very clear that there is research and interest and also development in using blockchain as the underlying technology to build a lot of these utility cases, as you say, that the industry needs to prove. So, in fact, some of the industry players themselves are the governments and the countries themselves. I thought that was super interesting.
Entwistle: It’s a great point. CBDCs, we do believe are one of the most important and certainly strongest cases for utility going around. One of the things that’s important to note and you saw this on some of the panels that you led and in the discussion around Davos: No two situations, no two central banks, no two countries are the same. There are 200-plus countries out there. There are a lot of central banks and they have different needs and there are different parts of this journey.
Our view is where can we come in that conversation, be a solutions provider, and help them along that journey?
There are certain countries that are far down the road – the digital yuan in China, others. But there are many emerging countries that are maybe smaller, that may have fewer resources, that may have different issues they’re solving for, where Ripple and others like us can come in and be part of that dialogue. So, we are in dialogue with not ten, not twenty, but a bunch more central banks around the world on these discussions. We’ve announced projects with Bhutan, with Palau, and others to come, and I think that just shows you that this really resonates now. One size does not fit all, but we need to be in this as this develops. Because you’re right about the big point here. There is no question that digital currencies are going to be a part of the landscape going forward, and every country has to have an answer for their own constituents as to what it will do and how it will impact and most importantly, we think, in the positive case, how it can really drive economic growth and financial inclusion.
Lau: But there’s certainly a regulatory divergence here. You talk about other countries in the world and other regions in the world, and then you take a look at what’s happening in the U.S.
First it was Ripple, then LBRY, now Kraken, the U.S.-based crypto exchange was slapped with a US$30 million fine for failing to register its staking programs. Some say a broad ban on crypto staking for U.S. retailers may be on the horizon.
It’s a lot of conjecture right now, a lot of FUD, if you will. And if that wasn’t enough, the SEC may be going after stablecoins. We saw that action against Paxos.
How do lawsuits impact growth and innovation in the crypto industry in the U.S. specifically? What’s your view, especially from the zero-foot, face-to-face, and then from a more global view in which you’re also participating?
Entwistle: Correctly point out there is certainly a tightening. It does feel like there’s a lot of action. But I will tell you one observation and this comes from my time at Ripple, at a time other innovative businesses building them here outside the U.S.
We are building quickly and innovation is happening outside the U.S. We, as a company, added 300 people last year, with the majority of them in the international markets. The bulk of our business is outside the U.S. right now. The take-up of some of our most innovative products is outside the U.S. So, the only thing I’ve learned to do over this time of building businesses when there are headwinds in a certain market, is to make sure your teams are focused, you’re getting the best people into the company, and you’re building where you can. For us, that means building outside the U.S. and doing it quickly. Not every jurisdiction is perfect. They’re not all the same. But we have to create a company, a footprint that enables us to build, enables our customers and partners to come on board with us, and deliver something that, as we talked about earlier in this conversation, is actually differentiated so that a government or regulator looks at us and says, ‘You know what? That is a solution that we want to welcome onto our shores and we will be better off for it.’ That’s what we’re after.
Lau: Everybody’s watching this Ripple vs. SEC case. It’s going to be a landmark case. It will not only have an impact on Ripple and XRP users, but the entire industry at large. How soon can we get a decision? What’s the lay of the land there? What are the implications of the lawsuit for the crypto industry as a whole and when will we get the result of that case?
Entwistle: Well, you’re absolutely correct that this is not just about Ripple. It’s about the entire industry and it’s about innovation in the United States and we can’t predict timing. We have done all we can on our side. We’ve made our best case. It is now with the judge, and we would hope and expect that in the first half of 2023 there would be some resolution.
But again, timing wise, it’s something that’s completely beyond us. It’s actually a really important point and segue to how do you deal with a company during this time? I mentioned the focus on building. Our employees get up every day and, while they do read these news articles and watch broadcasts like this, if they are outside the U.S., they get up every day ready to build because they can build. When you wake up every day and you’re worried about whether or not the regulation is going to go against you, it does make it very difficult to build companies and to build teams, not just for Ripple, but for the industry. That’s been true, by the way, in the gig economy and in Web2, where it was a heavily regulatory environment. I was a participant in that in my previous role. So, we’ve been through this before. But I only know one thing to do, which is to get our people waking up, excited about innovation, excited about making a difference. We’re coming to you. You and I are both talking in Asia. We’re in the land of innovation here on fintech, and we’re in the land of innovation on blockchain and the use of crypto. So that is a great way to wake up and not think first about regulation coming down on you.
Lau: But it must have impacted business thinking. It’s taken a significant chunk, not only on capital, for sure, but energy. How do you then take whatever you’ve learned over the course of this legal action in this legal battle with the SEC? What steps does Ripple now take to ensure regulatory compliance in new jurisdictions? You know, are there new things that you’ve now adopted as a result of ‘Let’s just make sure that everybody understands why we’re in space?’ Has it changed the way that you conduct communications and outreach with partners? How has it shifted thinking?
Entwistle: Absolutely. That is a really important point. You have to go on offense on the policy and regulatory front, and offense in a really constructive way. So that interaction being live, real time, with regulators is really important. We’ve built out our policy team. We have an outstanding policy person in the region here with us on the ground as part of a global team. So we have to be, again, offensive. That means, to your point on not just issuing white papers or responding to things very quietly in the background, we need to be hosting events, having our customer conferences, being on standby for when someone does call and says, ‘Listen, we could use an explanation about CBDCs or the like.’ You also brought up ‘how do you think about managing from a business standpoint?’ Well, in addition to building policy teams, building your teams on the ground, and being open to these dialogues, you also have to be very focused as to what you go after.
One of the big impacts on this environment as to how you think about 2023 as capital does dry up, as companies struggle. You’ve only got the ability to go after a couple of things that really matter. This is not a time to chase bright, shiny things all over the world in the hope that some of them play out. That really is important, as well. What do you do well? What’s your core business? Where can you add value and make a difference? Some of that stuff may have to wait.
Lau: It’s time to be boring and I fully embrace that. We’re going to take a quick break. But when we return, we’re going to talk about why 2022, despite being a bad year, was maybe a good year for Ripple when we come back.
Welcome back. We are in conversation with Brooks Entwistle of Ripple Labs. According to Henry Kissinger, “who controls money, controls the world.” How do you think it’s going to play out in a decentralized world where money is taking different forms and technologies, opening up access and control? How will this shape the world in a way where we see more inclusion and more opportunities to engage in a global digital economy? What do you think those pain points are when it comes to all of this? The policymakers are paying very close attention here.
Entwistle: They are indeed and there’s a good reason. Just go to the number of unbanked people in the region that I’m sitting in right now in Southeast Asia. The number is actually 290 million, larger than the population of Indonesia, that still have not actually been able to participate in this exciting economy that gets the headlines about venture capital money being put to work, public companies going public, all the exciting things that we live and breathe and keep us motivated. When it really comes down to it, how does it impact that person running a small kiosk in an outer village in a Southeast Asian country? And how are they participating in this growth potential in this region that we very much believe in? And that’s true in Southeast Asia. It’s true in south Asia. We think about the opportunity for us not in small subregions, but as a global opportunity.
And even out of Singapore, we think about a mega region that includes the Middle East and South Asia and Southeast Asia. But if you’re a policymaker and you’re looking after a group of constituents that may or may not be responsible for putting you in office, you need to take care of that constituency in every way you can and that means economic growth and it means the opportunity for their children to go to school, to get an education, for their business to be successful, whatever the case is and so, we are a mission-driven industry.
If you go back to what we’re all trying to do in this fintech revolution, and you can, as you have, talk to so many founders and executives in this industry in this part of the world, and they really relish this ability to say, ‘You know what, we are making a difference for that worker in a Saudi oil field who’s trying to get capital back to that family in the Philippines, and do it faster, cheaper, more reliably.’ If they can do it, they don’t care. But if they could do it in an environmentally sound way that is not kind of blowing up the world on the energy front, it is actually a great opportunity and one that is huge.
That’s just on the remittance use case. Think about the small business use case of these underbanked SMEs that need the ability to move capital, to move value between offices, between countries if they’re in multiple countries. So there’s a lot of room to run, but we have to continue to be mission-driven on that front, because when you are, it keeps you honest with policymakers. Back to your Henry Kissinger example, making sure that the states themselves have a reason to support you and have you in the game.
Lau: There’s a lot of competition, though. Increasingly we’re seeing other firms announce cross-border transaction platforms and protocols that allow these transactions in the same way that Ripple has with central banks and with different jurisdictions.
How are you addressing perhaps an increasingly crowded space?
Entwistle: Competition is good for all of us. You’re correct that people are chasing this. They should, because we believe, and we’ve said this in the beginning at Ripple, the movement of value across borders is one of the last unsolved big financial problems or conundrums in the world.
So, the more people chasing and innovating around this, probably the better for these same constituents that we were talking about earlier in our conversation. Now, as it relates to what we’re doing at Ripple, we actually believe that this is harder than it looks and it takes longer than it looks. That means you’ve got to build a global network, which we have with RippleNet, which is now in 70 plus countries with partners on the network that are world class partners that we’ve spent a long time vetting, making sure from a KYC and AML standpoint they are world class before they even participate in the network. You can’t put together a 70-country network with hundreds of participants on it overnight. Yes, there are lots of great innovations across single corridors or within certain regions, and that’s going to continue to happen. We offer a holistic global solution, which is using the latest technology from a blockchain and messaging standpoint and now increasing the use of digital assets as the bridge currency between countries. So we just need to keep running hard and keep adding great people.
In an industry where not everybody is going to survive or make it, given some of these capital constraints, we firmly believe that we’re one of those that survive, are successful, and a leader in what we’re trying to do. But it has not happened overnight. We’re a ten-year-old company.
Lau: Well, you have some very interesting partners here. The Bank of England mentioned Ripple in its CBDC consultation paper. I believe the Central Bank of Uruguay declared Ripple as their money transfer company. You signed an MOU, as you said, with the Kingdom of Bhutan. How do you think 2022 is going to shape up what we’re going to see from you, from these central banks, in 2023? What is everyone working towards?
Entwistle: We have to make sure that, through all this noise, that we’re focused on where the opportunities are. I do think we did a great job of keeping our nose to the growth grindstone and build grindstone in 2022. What that resulted in was a lot of these conversations that are happening and you mentioned around the world. It is an interesting collection. B
ack to my point, these are not all in the same regions. They’re not all the same size and all the same place on the curve. But I think you’ll see more of those emerge as people get an understanding of the technology of what we offer and more MOU’s are signed and maybe more focus from the industry on going after this. So we’re encouraged for 2023.
We know that we’ve got to grow smart. We’re not going to add another 300 people this year because we’re consolidating that effort, and we’re certainly still hiring in selective areas where people can have impact right away. So there’s lots of lessons to be learned, especially in our region. There was a fair number of lessons to be learned. A lot of this action took place in Asia and in some of these markets and not always for the good on some of these failures and regulatory dust ups.
Lau: 3AC, FTX, one could argue came from Hong Kong. So many of these fallen chess pieces, as it were. But in the grand scheme of the board, I do want to talk more about Asia, as you’ve brought up. You’re in Singapore, a very important digital assets hub in Asia. Most of your career has been in Asia and Ripple is obviously rapidly expanding outside the U.S., and Asia-Pacific is, in particular, one of the biggest contributors to what we’re seeing in terms of growth.
Entwistle: It is indeed. It’s really interesting. I have loved a career out here. Building businesses in this part of the world has been a true privilege and a blessing. Whether or not that was as an investment banker or in the ride hailing business and now in the crypto and blockchain business, this is a great part of the world to build in.
Not without its challenges that we talked about, but that to me is really where the opportunity has arisen over time. I think one of the things that we’ve really focused on at Ripple and thinking about this upcoming year is – with plenty of people in our team that have been around and built businesses in financial institutions, been innovative fintechs – how do we put all these resources together and keep going at it? Because to your deep point there, Asia-Pacific is our biggest market, and that is not true for every Silicon Valley-based technology company. It’s highly unusual, actually.
When you wrap in the mega region that’s run out of Singapore, which includes Dubai and the Middle East and South Asia, our joint venture in Japan and of course ANZ, when you put all that together, it’s well over the majority of our business volume on the network and uptake of our product, on-demand liquidity. So that actually is really encouraging.
It keeps our people motivated. I’m a big believer in Singapore as a jurisdiction, as a place. Sometimes things don’t move as quickly on the regulatory front, but it’s thorough and you know when it comes out, it’s right and done right. Yes, there’s been plenty of black eyes in the region. Maybe we should have expected that because a lot of the early movers and biggest movers were coming out of this region and statistically, that was bound to happen. But the rest of the world has had them, as well. That’s not an Asia phenomenon.
Lau: Do you think Asia can lead the way for digital transformation of money?
Entwistle: I do. I think there are a few places. I’ve had this discussion with regulators and with government officials and certainly have been on the record with this for a long time in Singapore. Right back to the point, I sat on a capital markets committee at the MAS ten years ago when I first came here with Goldman Sachs. I really realized that this is not about a Southeast Asia lead that Singapore is playing for. It’s not about an eight-pack lead. It should be about a global opportunity. Can Singapore be a leader globally? I think fintech, crypto, and blockchain is one of those very unique areas where all these ecosystems come together and really lead and that pulls all of Asia with it.
Lau: If we were to be intellectually honest here, does Asia have the ability to have more digital transformation policy impact than the U.S.?
Entwistle: It’s a great opportunity to lead from a regulatory standpoint. Absolutely. That’s one of the beauties – that regulatory impact and regulatory innovation or leadership can happen anywhere and that’s where we’ve got to build around that. As we talked about earlier, make sure and interact with regulators that are willing to interact with us and help that journey along the way. I’m a believer in cover, and I have responsibility for each of our regions around the world on the customer front. So, I’m neutral from that perspective. There are lots of great opportunities elsewhere in the world. We happen to be connecting today in Asia and it does happen to be on the fintech and blockchain and crypto side in, I think, the fastest growing, most innovative place in the world.
Lau: All right. Let’s take a quick breather, Brooks. When we return, we’re going to talk to Brooks about his outlook for 2023.
Welcome back. This is still a very interesting year that has yet to be revealed. How do you think 2023 is going to shape up for the industry and for your participation in the vision of this collective future?
Entwistle: It’s a great question. Now we’re starting to get some signal through the noise and you start to lock in and figure out what the first quarter will look like. What we can certainly tell you, and the way we think about it, is that it will almost certainly change over the course of the year. There will be some exogenous shock, there’ll be some developments, good or bad, that we’ll have to play through and navigate through and that was the case in 2022, 2021 and certainly in 2020 for Ripple. So, we’ve got to be nimble and have our teams ready to adjust. We are encouraged about the business in multiple parts of the world, including Asia. Our customers continue to want what we’re selling, and that’s kind of the ultimate view of a product-driven company. We’ve got to continue to make that product work for everyone and continue to evolve and add talent around that area and around our engineering area. So, we’ll continue to do what we’re doing. We’re going to do the things that we do, whether or not that’s our core business in RippleNet, our network, or on-demand liquidity or CBDCs we’ve talked about. We have a focus around the carbon credit markets. That has been a project over time. There are a few of these things that we’re going deep on and pushing forward on, and there’ll be some things that maybe are a little bit less of a priority. I mean, I think the NFT market, if we were on this call a year ago, we would have spent a lot more time around it. We certainly have folks dedicated to this and we have an innovation lab in our RippleX and growth area. We’ll keep watching that. But we can’t be all things to all people and that’s not a great way to run a business of 800 people. It has a global footprint. We need to do the main things right.
Lau: Do you think the waters finally for 2023 and if I were to ask you to gaze into your crystal ball, but do you think those turbulent waters are going to calm a little bit, or do you think that the contagion impact is still potentially rearing its ugly head?
Entwistle: I think, at best, calm waters are second half 2023. You can’t sail a ship thinking about that. You’ve got to prepare for other scenarios and we’re doing that. But here’s one metric that I kind of think about, and you do this all the time because you’re leading panels and talking in these conversations. What is the amount of time that conversations start with and spend time on FTX and the fallouts before you actually get to a business-related discussion? We saw that. I will tell you, we were at a central bank in a Southeast Asian country in late November, and we had a great dialogue. All the prep work had been done. We were there with our partner and we spent the first 30 minutes just answering questions about FTX before.
Lau: The past is a great reference point. It gives us context, but the future is for us to define and thank you. Thank you for giving us a little insight into what the future holds for Ripple and we’ll be waiting for that ruling from the SEC and that lawsuit. I have no doubt we are going to touch base once again. But, Brooks, that is a wrap, and I truly appreciate you hanging out with us today.
Entwistle: Thank you for having me, Angie. Appreciate it.
Lau: And thank you, everyone, for joining us as well on this latest episode of Word on the Block. I’m Angie Lau, Forkast, Editor-in-Chief. Until the next time.