Crypto experts on regulatory compliance and building trust in the industry

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Interviewed By Emmanuel Daniel

In this conversation with Emmanuel Daniel, founder of The Asian Banker, industry experts Eric Anziani, COO of Crypto.com, and Anson Zeall, founding chairman of IDAXA, discussed their perspectives on the risks, challenges, regulatory uncertainties of crypto technology, and how it is shaping the payments landscape.

Eric Anziani, chief operating officer of Crypto.com, and Anson Zeall, founding chairman of International Digital Asset Exchange Association (IDAXA), shared their insider view of developments and implications of KYC (know your customer) and compliance requirements as the banking and financial industry starts to embrace crypto technologies. Banks, financial institutions and regulators are now keeping up with the rising trend of cryptocurrencies, stablecoins, non-fungible tokens (NFTs), central bank digital currencies (CBDCs) and decentralised finance (DeFi). The increased adoption by consumers of digital exchanges and trading platforms will drive easier access to these digital assets.

Anziani pointed out that one of the big use cases to grow the crypto space is in gaming and finance (GameFi). The gaming industry has 3 billion users globally and it can be a catalyst to drive the next wave of growth of cryptocurrencies. Meanwhile, Zeall pointed out that to expand crypto spaces globally, industry players must bridge the knowledge gaps that give rise to regulatory arbitrages and an uneven playing field. To be on top of the game, regulators must collaborate with industry players as the widening of crypto spaces is inevitable.

The following key points were discussed:

The following is the edited transcript of the full interview:

Emmanuel Daniel (ED): Good morning from Beijing, China. My name is Emmanuel Daniel. I'm the founder of The Asian Banker. I welcome all of you from a wide variety of countries joining us today on this masterclass called “Building trust, compliance and KYC into crypto and decentralised finance”. That's an amazing set of words, it sounds very technical, and it might be frightening to some of you. So, we added the word “masterclass” because we want this also to be a primer for those of you who are new to the whole idea of the backend of cryptos, how the different crypto organisations are working with the regulators and the mechanics itself. What is it that we're looking at when we talk about cryptos, when we talk about stablecoins, and when we talked about CBDCs, the whole range of it. I am very excited to have with us, Eric Anziani, chief operating officer of Crypto.com. All of us have been hearing about Crypto.com from around the world right now, Eric. So, we're very happy to have you join us. 

We've got a lot of questions for you about Crypto.com, what you do, your business model, and all of that. We also have someone very important, Anson Zeall, who is an amazing activist, as I would call him, who has been putting together global associations that work with regulators and bring all of the different crypto players together. He's well into the mechanics of working with regulators in building the infrastructure that we need to support the crypto industry. Anson is the co-founder of IDAXA and Access. Anson, thank you very much for joining us.

Let's start this conversation by asking, firstly, the two amazing guests and my friends to explain what they do. Give us a perspective of where the industry is right now. I ask this question because when we think about how the internet evolved, there were points in the history of the internet where you can say it's a milestone, a marker. The point in about 2008, when the internet had a billion users worldwide, the point in 2011, where the mobile device became prevalent, it became the most important device in many countries, and so on. Where are we with the crypto universe? Also tell us a little bit about your organisation. Let's start with Eric.

Addressing crypto needs

Eric Anziani (EA): Sure, I think we're not at the 1 billion user mark yet on the crypto space, but we've made tremendous progress in terms of making the technology more mainstream. If I look at the work from our research team, at the beginning of the year, we had about 100 million users globally, owning or using crypto. In mid-year, we had about 220 million users, almost doubled in six months. We'll probably hit 300 million users by the end of the year. So, tremendous growth in the space, but still a lot to go. One of the big use cases we see that will definitely help the space grow is things that are happening around gaming and gamefi, where blockchain and games start to connect. And we all know the gaming industry has 3 billion users globally. It’s going to be a big driver of the next wave of growth for the industry. But if I step back and talk a little bit about Crypto.com, just to describe it to the audience, today we’re the world's fastest growing and regulated crypto platform. We serve more than 10 million users, and we really try to address all their crypto needs, whether they're trying to buy crypto with traditional money, they want to spend it with our Visa card at a shop online or offline, or they're just trying to grow their assets. Our mission is to really accelerate the world's transition to using cryptocurrency and to bring it to one, two, three, five billion users globally in the next ten years. We really want to leverage that technology that you're talking about, blockchain as well as the cryptocurrencies that are built upon it. We can help build what we are aiming for, which is a more fair and a more equitable world, especially for all the creators, developers and the users out there. We can give them the benefit of that technology in terms of true ownership of the asset, and in general, better control over their money, data and identity.

ED: In terms of product sets, which product set does Crypto.com operate in? In exchange? You have your own token as well. And then, downstream and upstream, what are some of the activities that you do? 

EA: Yeah, we operate in quite a few markets today. Depending on the market, the product offering is different. We're really the first entry point. Anyone who wants to get their first bitcoin or Ethereum, or any crypto using debit card, or using a bank transfer, or any digital wallets that is relevant in their country, we enable that. We offer today, depending on the market, from 100 to 200 cryptocurrencies for people to get access to buy and sell. That's one of the entry use cases for most people in the space. We also allow them to spend this cryptocurrency using a Visa card. That is accepted at more than 70 million merchants globally. It's a beautifully designed metal card with great benefits, cashback, free Spotify, free Netflix, that way you can sell your crypto and use it for your day-to-day needs. Those are the two major use cases that people come in into the space. We also have an NFT platform, for example, for people who like to collect digital assets and representation of art or music, and we have that available for them to get introduced into the space and start connecting with creators and memorabilia. 

Domicile is no longer important

ED: One question that we want to discuss here with regard to regulation and so on, which is very relevant to you as an organisation, Crypto.com, where in the world are you domiciled? The whole question of domicile is up in the air. I’ve visited crypto processing centres in Nanjing, and they were the first people who told me about Binance and Changpeng Zhao (CZ). And then I was thinking that maybe all the processing is done out of here in Nanjing for Binance. And then there's Crypto.com, when you bought into the naming rights for the Staples stadium in Los Angeles, the Financial Times said you're a Singapore-based company. And then when I checked up your website, all of you are living out of Hong Kong. Talk to me a little bit about domicile.

EA: Sure, we've grown quite a bit. We started in Hong Kong in the early days in 2016. Today, we're a global company, we have 3,000 employees across the globe. We are working towards being regulated in all the key markets that we operate. To be able to do so you need to have offices in all markets where you want to get a license, you need to have hearts and minds in those markets, have compliance officers, have local general managers (GMs) or money laundering reporting officers (MLROs) to support your business locally. Singapore has always been extremely close to the heart, my heart also personally, I spent many years there, I still go there very often, as it was the first market where we launched our card product, which is really the flagship product of Crypto.com. Today we have a very strategic focus on Singapore, and we have a lot of our set up there and we are growing very rapidly.

Anson Zeall (AZ): I’d like to interject here. Even for Coinbase, where it is listed, you can see that on their documents, they are also listed on a global address as non-applicable as well. A lot of things are moving in that direction because when you're on the internet, everything is borderless, but we still need to abide by the rules in the different jurisdictions.

ED: That's a very interesting point you brought up, Anson, because you're saying that when Coinbase listed in the US, in the SEC filing documents, they stated their address as non-applicable. Can you imagine that? And it was accepted by the SEC. This whole question of domicile, domicile is a very interesting element of crypto players worldwide. Maybe Anson, I want you to explain a little bit of what you do at Access and IDAXA. In terms of leveraging regulators in the different markets, is there a regulatory arbitrage taking place right now. The regulators themselves are looking over each other's shoulders and saying, okay, at which point do we enter? How do we play this game? Is there something called regulatory arbitrage that when you are accepted by one regulator, the other regulators see you more favourably, stuff like that?

Knowledge gap of regulators

AZ: The regulatory arbitrage nature now is definitely very different compared to five years ago. For example, five years ago, for the crypto companies, a lot of the regulators actually don't know much about what cryptos are doing. There is a knowledge gap for most regulators. They're treating them as another normal company, and then they come into that country, but only to find out more about them than they understand what crypto companies are. The first phase was a knowledge gap, so allowing them to come in, and then a fear started setting in and then the industry comes together to work and engage with the regulators. Now we have arbitrage in a sense where there are some regulators that are super far ahead from others. You're working with them not because the regulatory arbitrage is to take advantage of the situation compared to before. Now, we're working with regulators that know their stuff, and they are some that are super left behind. You will reach a stage a few years later that every regulator should know how to deal with the regulation. But definitely the crypto industry is trying to work with regulators where possible right now. The nature has changed a lot.

ED: Anson, at this point, tell me about IDAXA and Access. What do you do? And who have you been working with?

AZ: Access is the association that I chair. It’s the Association of Cryptocurrency Enterprises, Singapore. We've been established since May 2014. Back then, when we spoke to Monetary Authority of Singapore (MAS), as a number of startups together, they thought we were just a gaming association, gaming geeks coming together. But we were actually trying to show them the advantages back then of bitcoin and blockchain. But now we've evolved into an association where we have quite a lot of expertise in understanding global regulatory issues and challenges. We've also worked with MAS on a code of practice, with very big help from Crypto.com, on the anti-money laundering (AML) and combating the financing of terrorism (CFT) processes that all of the licensed banks should be doing. And then they also give the stakeholders such as MAS, other regulators and the banks to know that many of these companies do have a process when doing AML and know your customer (KYC). IDAXA was formed in 2019. It was more of a response of what Financial Action Task Force (FATF) has issued back in 2019, a set of virtual asset guidelines. FATF calls it virtual asset but essentially, it's crypto. These guidelines, some of the recommendations were quite strict, and it was quite a problem. The problem is when we speak as Access Singapore, we don't have such a strong voice, Crypto Valley Switzerland doesn't have a strong voice on its own. We decided if we all come together as one voice under IDAXA, under one umbrella, it will speak on the same level as government entities such as OECD, FATF and so on. IDAXA is a united voice of a majority of the crypto associations around the world with the support of very large crypto companies. Some of our associations include Crypto Valley Switzerland, support from the Japanese associations, Japan Cryptoasset Business Association (JBCA) and Japan Blockchain Association (JPA). We also have partners with Global Digital Finance Chamber of Digital Commerce, Washington, CryptoUK, Blockchain Australia, Blockchain Indonesia, and so on. When we all come together, we form a much stronger voice. We have a platform called V20, which we hosted in 2019 and 2020. We'll have a huge one hopefully if COVID allows in Bali for next year at the G20 in Bali. The issues we discuss is of DeFi, NFT, the definitions and how to go about it, and so on. Most importantly, this is a platform for regulators to come to speak to the private sector. It's not like a panellists session where everybody just comes to talk. We're here to solve issues at the conference and come up with findings for both the regulators and the private sector.

ED: One of the reasons why I wanted to talk to you on a programme like this is precisely because you talk to FATF. When they say virtual assets, let me ask you this question, does virtual assets also include CBDCs?

AZ: For now, FATF has already got the instructions from G20 that the scope in terms of AML/CFT does not include CBDCs. But the scope is for so-called stablecoins and the service providers. So CBDCs, in my view, should also be within the purview because there's a lot of commonalities with the so-called stablecoins. But it's not in the scope of the guidance. 

Interoperability standards 

ED: I'm just curious that that FATF is not wrapping its mind around CBDCs yet, that it has been excluded from FATF, although it's part of Bank for International Settlements (BIS) and other agencies that are trying to create a global element in there. In terms of IDAXA, some of the topics that you're working with FATF on, one of the biggest things is interoperability, for example, between tokens. Is there a kind of a standard coming out in terms of something that all crypto players subscribe to that FATF can look at? 

AZ: In the V20 conference which was held in Osaka in 2019 alongside the G20 leaders conference, the main aim for that conference was to discuss the first guidelines that came out. And one of the stickiest points in the guidelines from FATF was Recommendation 16, which in the banking world is known as the travel rule. Crypto.com was also an attendee at the conference. Why is it sticky? Because banks have to fulfil certain rules in order to use the SWIFT system to send funds across borders. If you don't fulfil all the compliance needed, you're not allowed to use the international banking system and the funds will be stuck locally. Whereas in crypto, from day one, we are able to send funds regardless to who you're sending it to. Good and bad, of course. Because of that, when in 2019, the guidance came in for us, in a way so-called forced upon us, we needed to find a way on how to, one, continue sending yet be able to share the AML/CFT information if there is to the regulators as well as sharing between the intermediaries. When I was at Vienna speaking at the FATF Private Sector Consultative Forum, I made the point that it was important that we find a way to do it, but we also need to be mindful because it's so decentralised. Different companies do things differently. For example, if Crypto.com uses compliance software A, Coinbase uses compliance software B, if they don't have a common way of communicating, then there's no point in that, it doesn't work. We can work with different associations, co-led with Chamber of Digital Commerce, Washington, as well as Global Digital Finance, which is based out of London to come up with a standard called InterVasp Messaging Standards (lVMS) 101, which is the data model for these compliance softwares to use so that once they have a standard data model, then at least from that standpoint, they can communicate with each other. FATF knows about this and has written, obviously not saying the name, but have written and indirectly hinting that these standards already work from the private sector. So yes, it's coming up. And if there are more standards that are needed that when the regulators want to see or when the private sector wants to do it, we will continue to work on that as well.

ED: Eric, one of the interesting things that I realised when I saw your numbers at Crypto.com, annual revenue of $55 million, total funding of $36.8 million to date, 3,000 employees, 10 million users. How in the world did you afford to be able to pay $700 million to rename the Los Angeles Staples Center? I'm asking this as a conceptual question. Give us an idea of how your business is run.

Compliance and security from day one

EA: We've been very fortunate to have a very strong and supportive community. We've built a very large-scale business today. If you look, for example, at our exchange business globally, we process $4 billion to $5 billion per day of volume. And we have multiple, very strong at scale product in our ecosystem that generate revenues for us. We're able to reinvest into growth, into new business lines, and to help the industry go mainstream. I think it's very important for us as Crypto.com as our name, it is a category to support the industry for it. We are at the stage where this space is growing very fast. That's why we're investing aggressively to help that growth and help the industry move forward. Not only from a marketing standpoint, but also from a standard and compliance standpoint. When we started our business, there are two foundational pillars five years ago. One was compliance. The second one was security. We've invested in both massively, we'll continue to do so. Our view is that the industry would be regulated fully. So, we started from that concept. We put KYC and AML in place for our entire set of customers from day one. We worked with regulators across the globe and have been able already to acquire many licenses in key jurisdictions. We also work with all the international bodies to have the top certifications on cybersecurity, on data privacy, whether it's ISO, whether it's Payment Card Industry Data Security Standard (PCI DSS), whether it's working with the Chamber of Commerce with their NIST certification in the US. We invested a lot in that space to make sure we have a robust foundation to help the industry go forward and for our business to last.

ED: When we talk about income streams, which ones are strong income streams right now? One of the things that fascinates me about crypto, and I'm a big fan, is because I walk into the offices of blockchain players who are creating supply chain architectures and so on with a token in it, and real things are happening. And then I come across people who trade daily, lending on their token, and so on. Of all the activities, which ones are strong revenue generators for you today that shows the depth of the industry?

EA: I would say today the industry is primarily driven in terms of activity by the trading use case followed by payment use case. Those are the two major use case we're seeing, and that’s normal for new asset class. NFT and gaming, those are the emerging ones. The revenue from these business lines will be tremendous in the future. Today it is primarily from trading and payments. 

ED: Payments, is it country specific? There are countries and regions where crypto payments are really substantial. Is that the case or is that global? Or are there a lot of payments already taking place in traditional countries, Japan, Singapore, US? 

EA: For us, there are two types of payment rails. One is when we work with Visa, and so we use the traditional fiat rails. We enable people to spend their crypto using that rail. For that, it really depends on where we are available. We started our journey in Singapore, then across Asia, we launched our own programme in Australia, we cover 30 plus markets in Europe and the UK, and we're in the US, we're in Canada, we just launched in Brazil. Wherever our card product is available, we're able to see that strong demand. Today we have about 70% to 80% market share in the crypto card business. We've invested significantly in that part. We see tremendous growth, whether the market goes up and down, people love the product, and they love to have the ability to use these assets, which are virtual in nature, in the real world. I think it’s very important. It brings peace of mind, you can at any time use those assets for goods and services. That's very powerful across the globe. 

Bringing new tech into mainstream

ED: Actually, your relationship with Visa blows my mind, because this is like sleeping with the enemy. This is like the organisation that should be spoken off in past tense by now. And yet they seem to be wrapping themselves around crypto. Explain to me a little bit about that relationship you have with Visa? What is this rail? Is it just simply using the traditional rails and putting crypto on it so that you can use crypto for that transaction? The backend might well be good old fashioned fiat money. Tell me a little bit about the relationship with Visa.  

EA: That is correct. We've been working with Visa for five years now. The last few months we elevated our partnership, we became a global alliance partner with Visa, and also got the ability to issue our cards directly. So, we're a principal member of the Visa network. It's very important when you look at bringing a technology to the mainstream, to work with instruments that people are familiar with, especially in the payments space. Using your debit or credit cards is still extremely powerful and understood by most people across the globe. And I think it's a very strong entry point to get people into the space. We are also developing our own native payment solution for Crypto.com Pay, which is more like the Alipay of the world where you have to scan a QR code and you can pay natively in crypto directly to merchants across the globe. That will take decades to build. It’s a very important business that we're developing across the globe to ensure we can offer both that native experience in crypto but also something familiar to bring people into the industry. 

ED: At which point do you think such a model will start to disintegrate because the direct crypto transactions become mainstream? At which point do you think it will start to go down? What you're saying is an interim measure because you're using platforms which are familiar with people. At which point do you think you can weed off relationships like Visa because the backend is old fashioned?

Future with all forms of currency

EA: I don't think it's something that will happen in the short term to be honest. The space is still small, it’s still very nascent, there's so much space to grow. We're keen to work with all partners like Visa to grow the industry forward. I don't see that happening in the short term. I don't think also there will be just pure cryptocurrency out there in the world, there will be still fiat in countries, there will be CBDCs, there'll be other forms of money out there. It's just not one currency that will dominate everything. We want to create a world where people have options, they can benefit from the utility of these different options and be able to use whatever makes sense for them in their country in their journey. 

ED: When I think about your rebranding of the LA Staples stadium, you're spending money that a Coinbase would be spending, in that the funding that Coinbase has is so much bigger and so on. Is there a business model in there that this money needs to be spent in order to maybe generate visibility, the justification?

Working with visible entities to bring crypto to mainstream

EA: The renaming of the stadium is one initiative out of a few. We also partner with big brands like Formula One, UFC, 76ers and PSG and other football leagues across the globe. Our goal is to bring the technology mainstream because we believe it has very important benefits for individuals, as well as creators and participants in that ecosystem. We want to bring the technology mainstream. To do that, we need to communicate to a broad set of users about what is the industry about, what's the value proposition, and how we can improve their lives. Working with top sports brand and visible entities like AEG and the Crypto.com Arena today renaming is critical to that. We've seen the receptions from customers, the feedback, and the coverage that we get really makes the technology mainstream. It's very important to drive awareness. And so, we can grow the space responsibly, and get people to understand that and educate themselves about cryptocurrency, blockchain and even CBDCs. What is it about? How can it improve my day-to-day life? 

Mimicking banking and becoming mainstream

ED: Let me ask Anson the same question that I've asked Eric. Which products are becoming popular and potentially mainstream that there's enough traction in there? I know that Eric, you're an active trader, for example, on the lending tokens. How big is that? And which products actually mimic banking on a token or exchanges on a token? And how important are these for applications that are being developed? I'm asking all these questions because there are regulators and former regulators around the world who are saying things like, oh, you know, crypto, it's a wasted asset, it’s not even an asset. And they don't say that about gold, by the way. Gold is a piece of metal, unusable piece of metal. Whereas tokens are actively being used to create ecosystems and so on. Give us a sense of which are the most active areas and what are some of the issues and the problems that they have in becoming more mainstream?

AZ: Yes, for myself, I'm a very active user for the different DeFi products, which I will go on a little bit later. For two reasons. One is for me to understand what is going on. Two, once you start understanding, you realise how they're doing it to allow that sort of, in a way, rewards and returns that you can get from the ecosystem. There's a lot of different products out there that in a way, mimic some of the banking products. But one of the first narratives, most important, is the narrative of inflation. Because of inflation, as we know, US just hit a 31-year high inflation, that hits a very good narrative for bitcoin, for example. A few months ago, there was a report published by Coinbase, or maybe it was on the Twitter of Brian Armstrong. On the Google Trends, the searches for bitcoin have exceeded gold. Basically, people are more interested in bitcoin than gold itself, because of the inflation story. One is to hedge against inflation, that's one of them. In a way, it derives from this as well. Some of the products that they have is similar to savings products that have a higher interest percentage in return. So, you leave some cryptos there, you will have a higher percentage, not only just normal cryptos, stablecoins as well. There are also products into lending, products as borrowing, collateral, a lot of different things are from the banking industry. And I am very confident that a lot of bankers also moved into this industry, seeing how lucrative it is. The main problem right now, which we're also trying to solve with regulators, is the non-existence, I’m talking about non-existence of pure DeFi entities, meaning that there isn't any intermediary in between that actually controls the funds and so on. If there isn't a central intermediary, then what is the best way to regulate them? FATF has basically hinted in their reports that they also don't have the experience to regulate non-entities in the space, because since the 80s, they've existed, they've all been around regulating intermediaries. But if there isn't one, how do you do it? They've tried to go to the extreme, which had a backlash, in my view, or tried to regulate every single user that uses DeFi. For example, they had a point that if you own a particular token that has this sort of functions, then you'll be regulated. But some of the tokens such as Uniswap and many others, if you own a token, you also have a vote in the system. So, does it mean that you're going to regulate every single user? And if you do, how are you going to enforce it? There's a lot of these issues that we're trying to solve. Hence, the coming V20 we're going to do something like a workshop, like in 2019, and see if there's something we can come up with, what sort of conclusions we can come up from that V20 on how to regulate this whole industry properly, but yet allowing it to grow and also in the interest of the private sector as well.

Permissionless self-regulation 

ED: In fact, managing director of the MAS, Ravi Menon, was quoted saying, “Regulation must not front run innovation.” And yet, every time regulators get into wrapping their minds around crypto, they are front running already. The regulatory approach for different jurisdictions is designed. What you're saying to me is very interesting because when the Federal Deposit Insurance Corporation (FDIC) or rather when the US regulators say that stablecoins, for example, should be regulated as a depository institution, they actually open the door up for cryptos to become banks. You've allowed the crypto world into your traditional world as a result. And then you have jurisdictions where cryptocurrencies like Crypto.com are now in a position to buy banks to get the license. You've got that model possibly coming into place. From what you're saying, Anson, is that the whole idea of being permissionless is that the node has its own governance structure. The permissionless cryptos, are their governance structures sufficient as a regulator themselves? Is there a regulatory element in there?

Community regulation vs. state regulation

AZ: What I'm seeing now at least from a user and with knowledge of what's going on in the regulatory space, it is improving quite a lot. There are a lot of products out there that do self-regulation. What I mean by self-regulation is not top down where there is a set of rules. It is when there are new proposals or when things go wrong, the community comes together to solve it very quickly. Instead of going back and forth with a regulator, they actually come in and do it. Sometimes because they're not from the traditional world, there's a lot of innovation that comes in on how to solve these self-regulatory issues. I know also that managing director Ravi Menon did say that he believes that regulatory from top down from the state is still substantially better than self-regulation. Those are not the exact lines, but it’s around the point of saying that state regulation is still better. I'm open-minded on that. I'm not saying no or yes, because there are a lot of things from our industry that actually influence the traditional banking sector. If we look from a KYC perspective, because I'm also a user of Crypto.com, all the eKYC that has happened in crypto as well as fintech, is now going into the traditional space. All the new best practices that came up from crypto, including the thinking about using CBDCs, which is inspired from blockchain, stablecoins is also from the blockchain industry going into traditional. If we are influencing the traditional side, how can we say that traditional is going to be better than this. There must be a middle ground where you learn from ones that are innovating without any background. Yes, they don't have banking background, I understand that. But because they don't have a banking background, they think things differently, which can also influence on the traditional side. The traditional side also can bring experiences into the DeFi industry as well. I believe the middle ground is the best and not one way or the other.

Ban on cryptocurrencies

ED: What you've just said about the crypto going into the traditional banking, even the best practices in blockchain technology, it's there for banks to use for their traditional banking, transaction banking services, or even core banking systems. And they are not using it. They're spending so much time still nursing their original core banking infrastructure. It's bizarre. Let me ask you this question, and it’s a point-blank question. Are China and India, are the countries that are blocking out crypto entirely, are they wrong? What would they be missing out on in the next few years?

Finding the right framework

EA: I don't think there's any right or wrong. I think regulators in each country have a view on what makes sense for their citizens and how they want to protect them from financial risk. I would say in India there's some recent development. I don't think it's an outright ban, from what I hear from our teams on the ground. It's a little bit more nuanced, and some activities will be regulated. I think that's the intention rather than just being left there or outright ban. I think it's more about finding the right framework, like we see, for example, in Singapore. This is one of the most progressive regulators that we've seen that has actually developed its own regulatory framework to cover digital payment tokens (DPTs), those cryptocurrencies. Some of the other countries want to replicate that and find what's the right framework, to regulate these activities, whether they are trading, lending or others. There are different cases, different approaches by regulators across the globe. In India, there's a lot of back and forth these days. What we see is a little bit more around finding the right regulatory framework to support the industry. 

AZ: In my view, for example, at the FATF meetings, and I know that both China and India are also FATF members. With the meetings that we had, the ones that were very active in those meetings are the ones that have a very strong knowledge in terms of on the ground on what to do in their own jurisdiction. The jurisdictions that we work very closely with, obviously the US, Japan, Singapore and Switzerland as well, many of them are participating very actively in the meeting. I do hope that more and more large countries also participate in the virtual asset meetings, that's number one. And number two, if you look at India's current proposed rules, in a way it’s very similar to what Japan had. They did not say outright ban, they are saying private tokens are not allowed, and the tokens would need to be approved and come up from the regulators themselves. It is starting it rather than going back and forth with the Supreme Court back then. But now it's starting to move in a way where I feel they are talking to the private sector very closely, and then starting to open up when they understand more of what's going on. But as I said, if the larger countries participate in the international meetings, on even AML and all that, once they understand that, they should be much more nuanced and flexible in having a good framework in their own jurisdictions with regard to crypto.

ED: The reason I asked this question is that in China, I see incredible energy in building blockchain ecosystems and blockchain architecture. Everything from selling used cars to port authorities and so on. Many of these need a token in there that can activate the user base, especially if it's permissionless. I see that, to some extent, many of them are held back because of this blanket ban on crypto in China. Am I right to see it that way? Or is there another way around it that can benefit from blockchain where there is a blanket ban on crypto? Do you think that a country will be held back on broader areas like blockchain if they over-regulate or they put out an outright ban? 

AZ: According to what CZ said in the Bloomberg New Economy Forum, China is only banning the exchanges and also payments in crypto. But other than that, they are very pro on many different sectors within blockchain, like creating blockchain ecosystems and so on. In a way, they're supporting more closed-loop systems with what I am deducing from what I'm reading. Again, there is really no right and wrong, it really depends on the agenda of that particular country. If China is trying to push their CBDC, then there are some things that they may need to forego in order to put focus on that. And that's when maybe all these different bans yet still trying to work with the private sector and how to make these agendas come true. And some like India, where they are starting to understand it more now, and yet the demand is there, they still need to find a way to take advantage of this in a way that it doesn't overwhelm the amount of regulatory knowledge they only have, when things go wrong, they at least can still control it.

ED: So, it's regulators overreacting and then pulling back when they feel like they have better control, is that what you're seeing?

AZ: What I'm seeing is, compared to five years ago, there seems to be less of a knee-jerk reaction now. Back then you will see countries like Thailand, you were banned one day, and unbanned, and then banned again, and unbanned, which makes the investor community lose confidence. But now you can see, after understanding how it works, Thailand is also flourishing in terms of cryptos. I see all these things happening is because of the insufficient, the lack of knowledge. There are already places where you can fill that gap, like working with international governmental entities like FATF, which works with the private sector. We're now going towards that. Having less of these knee-jerk reactions will help because a lot of jobs, especially for example Singapore now, has a lot of jobs from the crypto sector. If you have a new sector that creates more jobs, I think that is what is a very big incentive for governments to keep.

Significance of stablecoins 

ED: I'm going to ask you a conceptual question because in there is a lot of issues loaded in there. Is a CBDC a stablecoin?Or is CBDC a form of stablecoin? It's a conceptual question. And I think Eric can help me answer. Are stablecoins an important part of your business or mix of what you have and what you do?

EA: Stablecoins play an important role in our ecosystem because it allows people to go back and forth between assets that are deemed more volatile versus assets that are deemed more stable, at least versus fiat currency if we don't account for inflation these days, which is pretty high. They play a big role. It's also easier for people to understand and to use, especially in the merchant use case where they do need some stability, in terms of what comes in, and how they can project their revenues and this forecast. It's a big part of the industry. It has a useful role in payments in particular, and as a source of how we can have a stable place versus fiat globally. CBDCs, people have been working on it for quite some time. But in practice, there are very few countries that are live and probably none that are live globally, full-scale within their own market. It's still very early. There's a lot of discussion, a lot of exploration, experiments in many jurisdictions. But it's not really a live at-scale concept. CBDCs are not meant to be on blockchain per se. And by blockchain, I would mean permissionless and open-source blockchain, whereas stablecoins are today. They will be in more closed-loop environments. And we don't know yet whether they will have programmability, which is a very important feature in permissionless blockchain. People can build all these new financial applications because they can programme it with smart contracts and define these contracts between users without intermediary and something that people can verify publicly. Those are two different things. They do provide some form of stability versus a fiat currency, and they share that commonality. But the infrastructure they will be likely built on is different. 

ED: In fact, the infrastructure is, as you say, it's a closed loop. Therefore, the data stays with the regulator. It's funny because you're going to build applications around it, you want the data to be in the system, accessible to the application developers. Am I right to think that way? 

EA: For innovation to flourish, of course, if you have an open-source ecosystem, you can see the pace of innovation is incredible. That's what we've seen in DeFi since especially summer of last year. Having the ability to iterate and improve very quickly on what people are building, it makes extremely, fertile ground for innovation and bringing value to individuals. Of course, in closed-loop or closed-source ecosystem, it's much harder to get more value and iterate that way, for sure. 

ED: You didn't speak very much about NFTs, you spoke about it as an up-and-coming area. Stablecoins in NFTs?

EA: NFTs, first, I think it started really with the with the artsy. It really is a digital ownership of an art piece. That was the original use case that we see. Now it's growing across multiple verticals, whether it's music, whether it's a connectivity with a brand, a sports brand. We've worked with the UFC to connect their fans with the fighters, with the events that they're building, there is an NFT being used as ticketing, to showcase your identity across multiple platforms. It's a super exciting space, we're trying to contribute as much as we can. We've built a platform for that we're working with creators, with brands to see how they can better connect with their fans and their users and bring them value. It's fascinating. One point I will add is that NFTs also create new communities, as we've seen in the early days of crypto, NFT, especially with the new avatar we call profile picture (PFP) type, like Crypto Bank, or Bored Ape, or even the one we launched recently, Loaded Lions. It's fascinating to see how people connect and get together around these communities, create benefits and value and have a way to express themselves and create something that has never been done before. I feel NFTs have that community power that can generate a lot of value.

Stablecoins vs. CBDCs

AZ: I'm still confused as to why the media is confused with the definition of stablecoins and CBDCs because they are two very different things. I think first we need to understand why stablecoins came about. More than five years ago, when many of the crypto companies came out, especially the exchanges, many of the trading pairs that they have in exchanges were usually bitcoin/USD, ethereum/USD and so on. And most of the operations rely on having real US dollars in the bank. That means your operations also require a bank account. But many of the banks, which were fearful of the industry, started closing all these bank accounts of these crypto companies. When you do that, it's very disruptive for many of the service providers, the exchanges. Many of the entrepreneurs came up with this concept called stablecoins, where in a way the risk is offloaded to them. They have a huge bank account, simply speaking, there's a lot of nuances in between, where supposedly having $1 in the bank will mean one stablecoin. One Binance stablecoin (BUSD), we have $1 in the bank account. This way, it reduces the risk on the companies because many of the exchanges can now run the exchanges without worrying of losing the bank account because they don't need it. For example, Binance.com, the entity itself does not need, not only Binance, lots of exchanges, don't need a bank account to have the operations to go. Exchanging to fiat is another question. Stablecoins came up from there, but because of that there's so many different use cases now. The difference between stablecoins and CBDCs is huge. One is that stablecoins leverage on the existing supply of the currency. So meaning that if you are a stablecoins issuer, you have liquid US dollars sitting in the bank account. Whereas a CBDC, according to the definition of what China has, it affects the actual money supply, the M0 supply. For every CBDC that comes up, it actually factors into the whole money supply that the country has. It's a very different thing. If a stablecoin issuer screws up per se, it doesn't screw up the money supply, whereas for CBDC it does. Not only that, there's a lot of political things you need to consider and how it's being done. For example, the Chinese one, they believe the model of being transparent, where all your transactions are being seen by the government entities is the way to go. Whereas the Swiss one, they have a white paper that writes that they believe a private CBDC is important where the Swiss bank would do a blind signature. And then the AML and CFT processes are done by the intermediaries. Just like cash, they don't know where the CBDC has gone to. That's why governments are still considering the different use cases. It's very different. I don't know why the media is still trying to combine both definitions in one.

ED: Actually, there are stablecoins in many countries, many jurisdictions now, Kenya, Singapore and so on, where the regulator is thinking about the role of stablecoins if it's already available. There is a question here. Can the crypto valuations be restricted and made less volatile by controlling their price fluctuations in cap and collar for a given timeframe to make them more trusted? The volatility of cryptos right now, how do you think it's going to play out in the future? Maybe Eric first, because you actually make money from the volatility, the interest in speculating on crypto. At which point do you think volatility will become more manageable in crypto? 

EA: Yes, it's a great point. But for sure, related to the question, I don't think anyone here wants to intervene on prices. This is a market-driven industry. Supply and demand make the price. But we do expect that time and as certain cryptos also within that asset class become more mature than volatility will reduce.

ED: In fact, that's my interview with Chris Giancarlo, who, as chairman of Commodity Futures Trading Commission (CFTC), introduced the whole idea of futures. In fact, he actually launched the first futures exchange for bitcoin, according to him, against the advice of other exchange players. Do you see products like futures, derivatives of crypto coming into the marketplace? Do you see some of the liquidity providers going into the derivatives space?

Derivatives 

EA: For sure, as we've seen in a traditional finance space, derivatives are very useful instruments, especially for institutions. They are also helping on the volatility of hedge against volatility, which is very important. I think it's great for the industry to progressively get to that level of sophistication. So, we have more players participating, that’s more ways for people to hedge and protect themselves. So, I think it's a good development. But of course, it is an even more regulated type of instruments. For us, for example, in the US this week, we announced that we acquired two CFTC-regulated derivative platforms, and we are going to be able to offer that, for example, to US customers. But the bar and the level that is required for people to offer derivatives at scale is much higher. I'm welcoming people in the industry to take that regulated approach to offer these services, especially to retail investors.

AZ: Firstly, the US dollar itself, since the 1900s, has lost over 95% of its value, I just want to put that out first. So that's why the inflation story is really a serious one. Trusting it is not really a relevant story. It's more on how do you now protect from a capital perspective with regard to inflation. In terms of trust, it's really by looking at how the industry grows. Overtime when people see more of this, the trust starts building. As I mentioned that in the US, the searches for bitcoin already surpassed gold by quite a bit now. It definitely also has been affecting the price of gold as well.

ED: I have another question here. How's the gap between fiat and crypto going to be bridged efficiently?

AZ: In my view, it's really dependent on what the market wants at that particular time. Once acceptance is here, then you will see how the relationship between crypto and fiat will evolve. One example would be, I did a crypto startup many years ago. Obviously, I was a huge bitcoin fan and thought that bitcoin was the currency of choice. This was back in 2014. But people back then were not ready. If you introduce a product that people aren’t ready for, then people will not use it. Back then we were also trying out the QR codes for people to use because we see that it will become useful. And only until the pandemic these recent few years, then the behaviour started to change. So it really depends on the time and what the market wants. That relationship between crypto and fiat will evolve together and what the relationship is. It's not really up to what we say.

ED: When Eric mentioned that they work with Visa to issue a crypto-Visa card, they are actually bridging that gap. And when we talk about stablecoins and CBDCs, that's another attempt at bridging the gap. And there is a technology gap, as well as a macroeconomic gap to be bridged. The technology gap is when a CBDC looks like a crypto, a macroeconomic gap is that fiat money, the way in which it absorbs inflation, the question is will crypto be able to absorb inflation and create assets that are viable in the long term going forward. There might be a winner and a loser eventually. I think that regulators started with being very reactionary towards crypto, and then slowly they are enveloping their own ideas using crypto technology and whatever they are learning from crypto. Here's a question for Eric. Crypto.com launched a blockchain called Cronos, what is the aim of this? Is it to offer more DeFi and gamefi products? What is Crypto.com doing to accelerate that? What do you think are the critical success factors of getting Cronos off the ground?

EA: We're investing heavily in infrastructure. In the blockchain space, we want to build open-source, permissionless, scalable blockchains, for people to build upon, especially creators and developers, and create an ecosystem around it. This is where we play really at the infrastructure level. We are providing a blockchain that is also environmentally friendly. In terms of the impact on the environment, especially versus some of the proof of work blockchain out there. We see Cronos as a place where people can build DeFi applications, gamefi, NFTs. We already have 50 plus projects after a few weeks that are being built upon it, $1 billion plus of total value locked (TVL), four million transactions. It's a fascinating to see. For us, for it to be successful, it needs to be open. We work with developers across the globe, we open source the code, we contribute, from our perspective, we get input from the community. And that's a very key success factor compared to some of the other players, it's really to give back, open your code, let people participate. I think it's very critical. As mentioned, at the beginning of the call, I think it's a good wrap-up as well. Gamefi is going to be super big. We see Cronos as playing a super strong role there. But we'll have to build the interfaces for game developers to connect and use the blockchain technology very easily. That's going to be quite critical.

ED:  Last question to Anson. What's wrong with Binance and why are all the regulators looking for Binance? Not that you can find CZ anywhere. But I want you to answer that question, just as a wrap-up, to give us a sense of what are some of the regulatory issues that we are facing today? 

AZ: Right or wrong, I don't think it's for me to answer. Because of the different business models are just happening between the different exchanges, some of the regulators are not comfortable with it. But I do see from the AML/CFT standpoint with FATF that regulators are now gearing up, at least to show that they are doing something after many years, the last few years of not doing that much. I think it's part of fintech and crypto to continue to, I won't use the word fight, continue to work with the regulators, because engagement is key. We've experienced this before, if regulators come down hard on the industry, and when there's still a lot of demand, the only thing that happens is everything goes underground. And then the main prediction of this is after a year later, you will have to open it up again. It's important that companies like Binance work with regulators, regulators also need to be patient to listen to both sides. You cannot just do things one way.

ED: Thank you both very much. Just talking to both of you, I'm learning too and I'm coming up with my own ideas, in terms of how this whole industry is going to take shape, and how crypto is going to change everything we do.

Keywords: Cryptocurrency, DeFi, Gamefi, Blockchain, Bitcoin, Ethereum, CBDC, KYC, Digital Assets, Intervasp Messaging Standard, Anti-money Laundering, Aml/cft, Asset Class, Gaming, Digital Payment Tokens, Bloomberg New Economy Forum, Money Supply, Futures, Exchanges, Derivatives

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