Cool with the rules: Why the crypto sector should embrace regulation

Transcript

Angie Lau: At first it was just Bitcoin, the OG of the digital asset world that started as open-source code, and 11 years ago it cost 10,000 Bitcoins just to buy two pizzas. They better have been good pizzas, let me just say that. But what a world we’ve created since then. And, boy, have we come a long way … Bitcoin has now been joined by thousands of cryptocurrencies, and the question today is just what kind of world are we building? A lot of people are wondering about that.

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, on location in Singapore.

Today, we’re in conversation with chief operating officer of Crypto.com, Eric Anziani. And Eric, it’s so great to have you in your office here, bringing Word on the Block to you, and here in Singapore. It’s great to be here.

Eric Anziani: Welcome to Singapore and to our office. Thanks for having me.

Lau: It’s a brilliant office, but it also shows the enormous growth that we’ve seen from Crypto.com. How did we get here?

Anziani: When we started about four or five years ago in Singapore, it actually was the launch of our first product. It was a card product, and we’ve grown to a full ecosystem of 50 million users — that we announced recently — across the globe. So it’s been a tremendous journey of growth from people and customers, as well.

Lau: How has the product evolved from four years ago to what you are today?

Anziani: We started with payment, and very quickly our users also wanted to do trading — being able to buy cryptocurrencies with traditional money. So we went on that journey to build this bridge between traditional fiat and digital assets, creating all this bank transfer capability, digital wallet acceptance, debit, credit card purchase capabilities.

And so we did that across the globe, and really created a platform that’s safe and easy to use to bridge between the traditional finance world and the digital asset world. That was trading. Then our users wanted to do a little bit more with the assets — so not only spend, not only trade, but also grow. So we launched interest-earning products, lending products. More recently — about a year ago — we entered fully into the NFT, Web 3.0 and GameFi space with the launch of our NFT platform. So it’s been quite a journey building that full ecosystem from payment to trading, financial services and NFT, Web 3.0 blockchain infrastructure.

Lau: You say four years ago, but four years ago it was a very heady space, but also, it was the cusp of crypto winter, and a lot of people didn’t believe in the industry and had a lot of hesitation about it. We kind of find ourselves having grown over the past four years, and here we are again at the cusp of something. What do you think is happening now?

Anziani: Well, we’re definitely back to some bearish times. And it’s true, we actually launched our first product in May 2018, which was just at the beginning of that bear cycle, so we have a lot of learnings from that. And I think today, if you look at some of the results that are public, and you look at the volumes or so across the industry, it’s definitely softer.

There’s also a lot of macro environment to take into consideration — stock market, inflation, the current crisis in Ukraine … So, all these factors are putting our market in much more choppy environments and softer market conditions. So that’s where we are today. I think, as a company, it’s a great time to invest and build. Stay focused — I think that’s critical — and prepare for the next cycle.

Lau: You have a lot of learnings yourself. You come from traditional finance, Goldman Sachs, etc., etc. What are the learnings that you kind of brought from that world? What brought you into the crypto world, Eric? I think this fascinates a lot of people because this journey of Crypto.com is also a personal one for so many of the people in your firm and in the industry.

Anziani: Definitely. For me, it was personal interest. I’ve been in the tech sector for about eight, nine years before the banking and the consulting days. And I was at PayPal when I first discovered Bitcoin, mostly through attending startup bootcamps of young startups at the time in 2013 and 2014. They were mentioning and trying to work on blockchain.

It felt very early at the time, and I kind of really got back into it in 2016 and read the Bitcoin white paper, starting talking to people, going to meet-ups, investing and looking at the space and filling it, experimenting with it. And I was just fascinated by, one, the technology, second, the game theory around it. It’s not only about the distributed ledger, it’s how do we prevent bad actors from interrupting transactions or double-spending? That whole game theory, the incentives that are around it, are so powerful to make it work at scale in a decentralized manner. And then the people, I think, the community built around the space were fascinating. People were so excited — so much innovation happening. So those were kind of the reasons that put me through the rabbit hole.

Lau: The rabbit hole is deep. The game theory is definitely very innovative. But right now we’re in an environment where algorithmic-based stablecoins — as one of the concepts of game theory in how to back the stability of a stablecoin — is kind of wavering and falling away, and definitely causing a lot of devastation in the market. When you think about innovation, when you think about the cycle in which we are right now, how do you view it from your personal point of view, from Crypto.com? How do you navigate the space right now?

Anziani: Yeah. So usually when you have these more positive cycles, there’s a lot of money flowing in, a lot of talent coming in, and innovation starts to spur from it. It’s a little bit more challenging when you get into the bear market. But this is where people can start really trying to find product market fit, experiment and test things out.

The stablecoin front is still a very large land of experimentation. It’s still very hard to find the right recipe, and it’s important that we continue to invest, because stablecoins are such a big piece of the ecosystem. They enable people to kind of go back and forth out of volatile assets, in theory. So there’s so much that needs to happen. For us, when these times come, it’s really about focusing on our people, innovation, building product that makes sense, iterating on our product and preparing for the next cycle.

Lau: How do you deal with some of the backlash that we’re seeing in the market, even experienced from Crypto.com itself, when you withdrew the staking rewards from card users? A lot of people reacted negatively to that. What was the response from Crypto.com? How did you take all of that in?

Anziani: As you know, we’ve moved a year ago from 10 million users to 50 million users now. And, as the platform grows, we have to make it sustainable and ensure the economics and the benefits we’re offering can sustain in the long run. So we had to make those decisions as we’re continuing to grow. We want to hit 100 million users by the end of the year and more beyond. We don’t always get it right 100%. It’s very hard. And that’s why we’re always extremely attuned to what the community has to say. So we announced some changes to the benefits. The reactions were quite strong, so we rapidly made some adjustments, and I hope we found some balance in the outcome.

Lau: Yeah, balance is an important thing, especially in this environment. And how does Crypto.com work with users and clients’ and customers’ money? There’s sentiment in the market right now. It’s going a little bit viral about exchanges in general. So we want to address it with you that the customer would buy an IOU when they buy a Bitcoin, and then that Bitcoin is sold to another person who buys that IOU. It’s similar to how traditional banking leverages the deposits of customers’ money. How does Crypto.com do it?

Anziani: Sure, we’re a regulated entity across the globe, and today with crypto assets in most jurisdictions, you do have to have one-to-one, and you need your account to balance out. So this should not be any notion of fractional reserve for crypto or anyone else that’s regulated. So that’s why it’s very important for users to look at how people have … certification and whether they have licenses to ensure that they have peace of mind with their funds.

Lau: The regulatory space is kind of a murky one to navigate. You’re headquartered in Singapore, but you’re also expanding overseas. We saw some Super Bowl commercials, to be specific, and certainly around the globe. Talk about — first of all — the importance: Why Singapore? Why here? As you grow, what’s next?

Anziani: Well, Singapore was a place of choice for many reasons. First of all, this is where we launched our first product — it’s kind of a special place for us — the Crypto.com Visa card.

Second, I think Singapore has been a very strong pioneer in regulatory frameworks and the Web 3.0 space in general. They were one of the first countries in the world to come up with a fit-for-purpose regulation around DPTs — digital payment tokens — and giving that clarity that businesses are really looking for. And it’s super important in our industry. The Monetary Authority of Singapore also has created environments for people to innovate, sandboxes and frameworks for people to continue to bring new ideas, bring talent in, so I think it was a natural choice for us to put our global headquarters here.

Lau: And what about the U.S.? What about the Middle East? How have the shifting regulatory stances changed? Perhaps global strategy, global growth?

Anziani: There’s definitely a shift, that’s for sure. Over the last few months, most of the big jurisdictions have changed their approach towards crypto and Web 3.0 regulation. It seems that there’s a very strong need to attract talent and businesses, as this is the next big economic opportunity. We’ve seen it in the U.S. with the executive order. In the UK, recently. In the UAE — I was there a few weeks back — it was incredible to see the energy, the interest to bring talents in and innovate out of Dubai, Abu Dhabi and the whole UAE region. Even Australia and Singapore from quite some time ago. But over the last few months, we have seen that shift. It’s extremely positive for the industry to see regulators and governments want to take a share and grow the Web 3.0 opportunity.

Lau: I think once upon a time, when both Forkast and Crypto.com were back in 2018, one of the big concepts was jurisdiction swapping. And now, as a lot of other countries and top-tier countries, quite frankly, (join that trend), with the United States being the gold standard, if you will, and Singapore is very much holding that role in Asia. How do you regard this groundswell? Do you think that it’s picking one over the other? How do you view, from a regulatory stance, this kind of ecosystem? Is it a leveling playing field? How would you characterize it?

Anziani: Yeah, so I think there’s always opportunities for regulatory arbitrage, but our approach to it is quite different. We want to be regulated in the key jurisdictions where we operate. So, although we have a global headquarters here in Singapore, we have local entities in the U.S., we have mTLS (mutual transport layer security). Same in Europe, we have an EMI (electronic money institution) license, we have a crypto license … same thing. Same in Africa, same in Latin America, in Brazil, same in Asia.

So, it’s very important to engage and get the right level of licensing in each of the markets where you operate. And I think that’s the way it’ll work, especially if you want to provide that seamless connectivity between the traditional fiat world and the digital asset environment. So, for us, being relevant locally, having hearts and minds in the market, is critical and, of course, operating out of Singapore globally.

Lau: I think a lot of people — I don’t want to say disregard — but often forget about the role of Asia in blockchain innovation and the industry. It’s a critical part. Singapore has seemingly tightened its regulatory stance on retail investors, on a lot of crypto exchanges, Binance pulled out, etc., etc., but has growing interest in NFTs and GameFi. So how do you balance what you need to do at Crypto.com, and how are you regarding this shifting stance?

Anziani: We fully appreciate regulators’ mission to protect customers from risk that they may not understand. So this is something that comes with an engagement with regulators in Singapore or elsewhere — to explain and find ways to educate customers better. So there are ways to distribute and market the products that are available. It’s a journey, and it’s important to respect that each country has a different approach to it, and they have good reasons for making those decisions.

In Singapore, the approach that we have is really working with the local association. We’re partnering with the Blockchain Association of Singapore on the NFT topic. We’re also a part of the Singapore FinTech Association, and we chair the Web 3.0 committee, and we’re in the payment working group as well. And we work with Accesso, which is another association here in Singapore. And through these working groups and these industry associations, we engage with the regulator and we try to make things evolve. But it’s important that we protect customers’ interest, and we respect also how different regulators perceive the level of risk and how they want to ensure they balance innovation with customer protection.

Lau: I want to hear more about the NFT space, how you are regarding it, how you want to create a new set of products and engagement with customers. And also, very famously, everything that you’re doing in the U.S., including those Super Bowl commercials and the very ambitious plans that Crypto.com has. 

Eric, NFTs. Why is this an interesting space for Crypto.com and for so many people in this market right now?

Anziani: I think NFTs are very unique. They’re a way to showcase, first of all, ownership in the digital world of any assets. But it’s also the primitive of the new ecosystem being built, whether primitive of identity or land or other type of assets which people, developers, creators can build upon. And that’s what we’re seeing today with PFPs (profile pictures), with avatars, with gaming — that NFTs create that base, that foundation that gives you that ownership, but also enables you to build upon it those new worlds, virtual worlds and ecosystems, and that I find fascinating.

Lau: I think the sports world also finds this very interesting. Everybody is crowding into the metaverse space. And Crypto.com and the sports world seem to be having strengthening relationships. And it follows on what we saw from FTX — their naming rights of stadiums and arenas. What is Crypto.com’s strategy when it comes to building your brand recognition for a growing audience that doesn’t necessarily know what crypto is and who you are? And what’s the message that you’re trying to send, working with the sports world here?

Anziani: I think we have to go back to our mission, which is to bring cryptocurrency to every wallet. And to be able to do so, having a trusted and global brand is critical. And there’s many ways to develop the brand. It’s true that last year we started doing that at a bigger scale, especially working with top brands in the sports arena, whether it’s Formula One, UFC renaming … also the Staples Center into the Crypto.com Arena, working with the 76ers, etc.

We try to partner with global and exciting brands that share some of our values, whether it be commitment to innovation, commitment to education and technology … and we’re looking at brands that have quite a wide reach — sometimes global, sometimes quite deep locally — to make sure we can reach customer segments that are not too far and may be interested in the cryptocurrency space. And (we know) the importance of working very closely with the brand to embed the brand in a relevant and meaningful way for fans of the sports and activating it when it makes sense for fans.

Lau: Are you integrating crypto into FIFA, into these sports teams? Are they starting to flirt with this innovation and embedding it into their own processes and even business transactions?

Anziani: Definitely. I think payment is kind of the low-hanging fruit, and we’ve been working with quite a few in their stores to integrate Crypto.com Pay, one of our payment solutions. NFT is another big one. It’s also a new way for brands to interact directly with their consumers and create new experiences in the digital and physical world at the same time. We have worked many times with UFC, the 76ers and Formula One in creating memorabilia or items with utility that speaks to the fans. So we’ve been engaging on these topics. I feel we’re just scratching the surface. There’s so much more to be done.

Lau: And finally, Dubai. So, we briefly touched on it. How interesting is Dubai right now — for not only Crypto.com, but for the industry?

Anziani: It’s definitely a place full of energy for Web 3.0 companies, talent, developers … We see the opportunity not only for licensing, of course, and creating some innovation in the country, but also helping the overall country develop and attract talent. And that’s why we were the founding partner of this event (the Investopia Summit), that group, global leaders and experts on how to solve global problems, leveraging also Web 3.0 technology.

Lau: What do you envision ultimately for Crypto.com? What’s next? Is there an exit? Is there an IPO? What can we expect from Crypto.com? What can the industry and the market expect from Crypto.com?

Anziani: I think, as a company, we’re well funded today, so there’s no need to IPO or to raise funds. But we want to mature as a business and operate as if we were a public company. So we’ve been working already for quite some time on this, and we’ll continue to do so. I think it’s part of just good practice across the business as we scale — how do we organize ourselves, governance, processes, to make sure we mature? We’re also a regulated entity in many countries — that also defines how we operate. So it’s a journey for us. There’s no set date for an IPO, but as a company, we’re preparing to operate as if we were a public company.

Lau: Will you surprise us if we see something a year from now, two years from now … or what’s the time horizon?

Anziani: I think we’ll have to see. 

Lau: We shall. Eric, it was a pleasure. Thank you so much for joining us on Word on the Block.

Anziani: Thank you for having me.

Lau: And thank you, everyone, for joining us on this latest episode of Word on the Block, on location in Singapore. I’m Angie Lau, Editor-in-Chief of Forkast. Until the next time.