SPEAKER_00: 0:00

Hey there, Crypto Curious gang. It's time to plug in and play with the Blockheads at BlockCast. Strap in for a weekly whirlwind tour through the blockchain jungle where NFTs, shiny coins, and crypto titans tango. Serve that with a side of spicy insights and the crunchiest bits of the digital sphere. Let's dive into the decentralized deep end. BlockCast is live in 3, 2, 1.

SPEAKER_05: 0:35

Welcome to BlockCast, your podcast for all things blockchain and digital assets. With me today is Jason Aligrante, Chief Legal and Compliance Officer at Fireblocks. Also co-hosting with me is Timothy Han.

SPEAKER_04: 0:46

Hi, everyone.

SPEAKER_05: 0:47

He's the General Manager at Blockhead. And I'm Timothy Mazia, Managing Editor at Blockhead. Jason, welcome.

SPEAKER_01: 0:53

It's great to be here, guys.

SPEAKER_05: 0:54

You are in Singapore for the Singapore Fintech Festival. How was that? And what do you speak about?

SPEAKER_01: 0:59

Yeah, we did a panel looking at the intersection of venture capital investment and digital asset space. We had absolutely incredible panelists. We had a commissioner from the CFTC. We had Coinbase representative. We had the head of global regulatory for Chainalysis. And we had a representative from Rivet Capital, which is an investor in Fireblocks, as well as a number of other companies.

SPEAKER_05: 1:21

Last year, we spoke to Ben Bolton, your colleague, on one of our Talking Heads videos. So it's great to have Fireblocks with us and Jason, for our listeners who are new to Fireblocks, what does the company do and what's your role there?

SPEAKER_01: 1:33

Yeah, sure. So Fireblocks is a SaaS platform. It enables businesses, our customers are only businesses, but it enables businesses to create wallets, to store data. digital assets and to securely manage them. It's really, when you get down to it, it's a lot more than that. It's really a complete solution for interacting with the digital asset ecosystem, if that's what you want it to be. My role there as chief legal officer is to really advise on a global basis on legal issues impacting the firm. Of course, today that includes a lot of regulatory work as we navigate this landscape for regulation, which is really changing quite quickly.

SPEAKER_05: 2:12

You've had a long journey from the Federal Reserve Bank of New York to Fireblocks. What inspired your shift towards this space? And maybe you could tell us about the journey along the way.

SPEAKER_01: 2:22

Yeah, a great question. I mean, to be honest, the first inkling of wanting to come into this space had more to do with what I wanted out of a day-to-day job, right? And so I was already a lawyer at the time. I was practicing law, and I had a very interesting practice. But I found for myself that I was interested in a wider range of topics, be it business strategy and things like that. So I was looking to broaden my perspective. And then coming into a blockchain-based company, or really the first one that I went to was also in infrastructure, like Fireblocks is, I found that I was actually really able to leverage my experience in the financial services space. And a large part of that has to do with the state of affairs right now in terms of the law that applies to blockchain based applications and services. We do right now a lot of analogizing to laws that were passed to apply to financial services. We don't have with a few notable exceptions like Mika in Europe. We don't have a whole bunch of laws that today strictly address themselves to digital assets.

SPEAKER_04: 3:28

Jason, I I want to move on to talk about your panel at SFF. You mentioned it was about venture capital and digital assets. I'm assuming it's about investment in the space. Can you maybe share a little bit more about how... VC firms are looking at tokens versus equity. And, you know, what are some of the legal considerations that they have to make when deciding whether or not they should allocate funds into a token project?

SPEAKER_01: 3:52

It's been a major story in the venture capital space, right? And you've seen a number of tokens and a number of projects, right, where they've either issued tokens in lieu of equity or, you know, other arrangements as the investors and the issuers see fit. But it's been really interesting because it's created a number of related challenges, right? And so we actually have a number of customers at Firebox who are themselves venture capitalists. And the reason they've come to Firebox is because they're actually holding and sitting on all these tokens that have been issued in connection with their venture activities. So how to manage those tokens, how to invest those tokens is now a real story for some of the larger venture capital names in the space.

SPEAKER_04: 4:37

So I guess, you know, that brings us to the next question, which is, you know, how, what what do you think are some of the most pressing challenges in compliance, risk mitigation in the digital assets industry today? I mean, in your view, based on the clients that you speak with, in your capacity as a chief legal officer in FiveBlocks.

SPEAKER_01: 4:57

Yeah, we're a wallet provider, of course, so forgive my vision being focused on that. But from where I sit, it's the security of the asset, the security of the wallet, that is absolutely the most critical thing, right? It is the fundamental... thing. And particularly if you're thinking about starting a business or building a business in the digital asset space, knowing that you have a wallet that's secure, it's the table stakes, right, for even getting started. And what concerns me is that even at this more mature stage of development, we continue to see hacks, we continue to see companies developing technology in-house that later turns out to have vulnerabilities. These can be all sorts of things, whether technological or operator error things that can happen. So again, for us, it's the security of the wallet and we'd love to see more done even at the level of regulation or at the level of standard setting to create some certainty in the market that any particular wallet provider is providing a wallet that's up to a certain minimum standard.

SPEAKER_04: 6:02

Okay, it's really interesting that you brought up the wallet. So I was discussing with Tim Mazur a couple of days ago. We understand that your wallet's an MPC wallet, right? I guess FiveBlocks holds some key shares. Client side holds a couple of key shares. So, you know, God forbid, if FiveBlocks does close down one day, what happens to the key shares that you guys hold?

SPEAKER_01: 6:21

Yeah, I mean, again, this is an absolutely fundamental question, right? We get this question all the time. I particularly like it. There are some jurisdictions I visit where it's prefaced with 90% of our ecosystem is using you. What happens if you go away?

UNKNOWN: 6:36

Yeah.

SPEAKER_01: 6:37

But so what I would say is that we issue on day one, not only a private key share to the customer, that is the only key share that can control the assets in the account, but we also issue them a backup and recovery package. And Fireblocks is built on the relevant blockchain, right? So all of the assets are actually... on the blockchain. They're not in some vault that Fireblocks manages. They're not attached to some internal ledger that we have. So the customer using the backup recovery package is, in the case of catastrophic Fireblocks failure, able then to go and reset its own system and access the assets, which are, again, sitting on the blockchain, the relevant blockchains, and move them out to another service provider.

SPEAKER_04: 7:21

Right. And, you know, financial institutions today increasingly diving into digital assets. We see BNY Mellon, must have been sometime late last year when they started offering Ethereum and Bitcoin custody. Franklin Templeton launching a tokenized money market fund. So how is Fireblocks tailoring your approach to meet the needs of this influx of financial institutions

SPEAKER_01: 7:46

into this space? We believe basically that banks are special, and they're special in at least two ways, right? One, looking at the opportunity side of things. Banks are the place where deposits sit, and they're also the place where a lot of other legacy financial assets sit. Those could be bonds, those could be securities. down the line. And the opportunity there, right, is tokenization. So we view stablecoins as a form of tokenization, and we view traditional assets tokenized as really a coming wave and a use case for digital assets that seems like its time is near. This was actually a topic on the panel that we discussed at SFF. So from the opportunity perspective, we think banks are really important. And then there's the challenge side of dealing with banks, right? So it's Because banks are so important. Right. Jason, I wanted to

SPEAKER_05: 9:28

ask you a little bit about what Fireblocks is doing to help Web2 companies or brands enter the Web3 space. I guess non-custodial wallets are a key threat. in moving adoption towards Web3. Could you speak a little bit about that and how you work with different companies and brands?

SPEAKER_01: 9:46

Our wallets are conceived as being non-custodial. Again, the idea is that the customer, our direct customer, should be in control of the digital assets and be in control of the wallets. What we found in the Web3 space, and it's like, how do you take this model of having a direct customer that's an enterprise customer, and how do you expand on that, right? So we introduced... what we call wallet as a service. But it's basically taking this concept, okay, we have a non-custodial wallet. What does that mean? It means that the customer has the controlling key share. What if the customer wants to build a Web3 experience for its own customers who might be thousands or millions on the retail side, right? Well, you take that controlling key share and what if you push it down a level further? So now instead of one step removed, you're two steps removed. And what if you can do that at scale? And we realized when we built this product that we were able to do it at scale and so so now if you if you're a business and you say okay i want to create a web3 experience i want to control it i want it to be tailored i want it to be all the things that i want it to be precisely you can come to firebox and using the wallet as a service you can launch something that looks like that and the end user customer i mean you know like incredibly right it's very cool the end user customer is the person who will ultimately control still whatever value or asset resides in that wallet you've created for them

SPEAKER_04: 11:07

Yeah, I think account abstraction has been a big thing, right? I mean, we want to be able to interact with an interface that we're familiar with. Single sign-on logins, 2FA, biometric verification. And these are things that banks are familiar with as well, right? In terms of how customers deal with their accounts. So I think that's an extremely important point when we think about onboarding the next million, billion people onto decentralized technology. It's important that we give them an interface that they are familiar with, that they recognize Jason,

SPEAKER_05: 11:40

as an insider in the space, what areas of regulation or compliance do you see that you feel is not getting enough attention right now?

SPEAKER_01: 11:50

Yeah, I mean, for me, it's the efforts. It's the efforts of the industry to comply with law, actually. And sorry, maybe this is a boring answer. But as an insider, what I see is a lot of concern, right, that digital assets are being used for, you know, criminal or terrorist financing, because we've had some very public failures recently, right, that the industry is somehow not on the right path. And, you know, my perspective is so different. What what we're trying to build at firebox we're trying to integrate as many compliant service providers as possible we're trying to create an ecosystem that can be a compliant ecosystem and you know to the contrary of what i think the narrative has become we're proactively going out to regulators and saying hey what do you what do you need from the ecosystem and what do you need from service providers like firebox to help you get comfortable and i think i think for me this is the work that's going unseen right now but i hope will have a really great impact going forward.

SPEAKER_04: 12:55

I think what you said is absolutely true. I just had a conversation with a digital asset service provider in Singapore just late last week. Currently, they have an exemption from the MAS under the Payment Services Act. And so I asked them, do you have any concrete plans to get licensed or perhaps think about a major payments institution license? What's on the cards here? And the answer was actually very sobering, right? They said, we are very comfortable with this grey area right now. I mean, and that's fine, right? If as a business you can operate in a gray area, but how long does that last? That's not a, I guess that's not a mode for your business. And the way the industry is going is very clear, right? There is a regulation is coming out, financial institutions are coming in. I think the only way forward for any respectable digital asset company is to think about how they should get licensed under whatever framework is available globally.

SPEAKER_01: 13:56

I think that's so smart. I mean, there are a lot of ways to think about regulation, there are a lot of ways to Maybe I do go out and get a license just in case, in case, you know, a rainy day comes. And I find that the industry is moving in that direction because these things can take, you know, a year or 15 months. And you can't lose 15 months of time when the regulatory landscape shifts under you. So there are all sorts of strategies in the space. And, you know, it's one of the things I really enjoy about my job is getting to have a deep think about what it means for Firebox. Yeah, yeah, 100%.

SPEAKER_05: 14:58

On that note, you know, what do you predict will happen? the major shifts will be in the global regulation landscape for digital assets in 2024?

SPEAKER_01: 15:04

I've been thinking a lot about it. I've been thinking a lot about it because we have been in a crypto winter. And that crypto winter, I think, is not only the drop in asset prices, right? It's the failure of many, many major names in the space, right? I don't think this has been anywhere near as bad, but my thoughts have gone to the last financial crisis of 2008-09. And actually, what's interesting about the analogy or thinking back to that time period is that The way we kind of solved it at the time was through this major coordinated policy response. And that's precisely what we haven't seen yet in the digital asset space. I don't have any indication yet that we have that kind of multilateral consensus around digital assets. And where I think that leaves us is actually also in a very interesting place, which is a number of regional powers that have taken an interest in the digital asset space. I think the MAS is a great example. I think we've also seen recent actions in Hong Kong that tell us that they're interested in seeing expansion in the space. Australia, just to stay with APAC a little bit, but I think we're going to see experimentation at the level of the regional and kind of the local nation-state level. And that could end up being very influential. The reason I say that, right, is if you look at what Europe has done with MICA, I've had conversations with other regulators who have said, basically some form of, hey, we're thinking about getting into digital asset regulation. We're not sure what we should do, but we feel like maybe we should just do MECA, right? So this is not like Europe acting is not the same as the G7. It's not the same as the G20. And yet here we are in a situation where what they've done is already percolating through a global ecosystem of interested potential regulators.

SPEAKER_05: 16:53

The current fragmentation of regulatory regimes, that's a boon for your business, right?

SPEAKER_01: 16:58

Well, I think... you know, to be frank, right? It's an opportunity. Yeah. And what that opportunity looks like is, um, you know, we're here in Singapore. I'm, I've traveled here in Singapore, right? And part of the reason we have a presence here is because we view the MAS as a partner that we can have conversations with. They're obviously, um, operating sandboxes of various kinds and these sorts of things. If you have a really good idea and you have, um, someone that you can at least have a conversation with about it, these are really powerful, uh, opportunities. And so, um, In that sense, yes, we do view the fragmentation as a chance for really good ideas to be heard and potentially implemented.

SPEAKER_05: 17:38

Can you give us a sense of how you see your firm, Fireblocks, navigating this evolving regulatory environment over the next few years?

SPEAKER_01: 17:45

Yeah, so I think we have a few objectives. I mean, listen, at the end of the day, we're business-focused. What we want to do is we want to grow the customer base. What we see as a dependency for growing the customer base is the world becoming safer and safer for digital assets. And that can mean a few things. But I definitely think it means regulatory clarity. So in jurisdictions where everyone is operating in the gray space, that might be fine for the digital asset firms that are doing that. But it might not be fine for those big banks we were talking about who are going to need probably a little bit more to come off the sidelines. So, you know, a big part of the job in my role is trying to have those conversations, trying to encourage and create conditions to, you and make the world safer digital asset adoption. And so, yeah, I think that's one of the things we're focused on.

SPEAKER_04: 18:35

I think the Fireblocks product offers access to something like 50 plus chains, different blockchains. So I was just wondering, is this a function of what the clients want? If they say, hey, you know, we want Celestia blockchain or XYZ blockchain, and then you start to build up that capability, or are there, you know, some kind of other deeper considerations before you start offering these chains.

SPEAKER_01: 19:02

Yeah, it's true that we are incredibly customer focused, right? And historically, I think even more so than today. So we started in a place where really the business was built on a segment that we call crypto native. These are basically trading firms and either trading on behalf of their own customers or just themselves. And so a lot of the strategies that these firms looked to execute had to do with adding various blockchains to the platform. As we've evolved over time, this continues to be a major segment for us, but as we've evolved over time, I think we have raised the bar for considering whether a new chain should really come onto the platform. And I think we've built a product roadmap that frankly has so many interesting things on it that just adding chains at any request is now something that we just scrutinize a lot more closely.

SPEAKER_04: 19:50

Let's move on to some of the more tasty things that are happening in the US. Bitcoin ETF approvals. What's going on there?

SPEAKER_01: 19:59

What's your hot take? Yeah. So I'm kind of like, I'm kind of getting a little optimistic about the U.S., which is a completely dangerous place to put myself in. But I've been watching the market very closely, and I'm obviously based in New York City. And it feels to me like we have a few potential catalysts in the U.S. that could really open up that market to digital assets. So we've already seen Bitcoin, Ether, and other assets basically have a great year for themselves, up, I think, over 120% year over year. That's a catalyst, right? People pay attention when that happens, whether they're they think they're done with Bitcoin or not. It tends to open the eyeballs. And then, of course, like rumors about ETFs are driving this. So I think not to go too deep into the legal, but the SEC declined to pursue an appeal of the decision, basically saying that the ETFs had to go forward. So I do expect to see one or more of the ETF applications approved, if not by the end of the year, then very early next. Of course, once one is approved, that's the roadmap for everyone else. So to the extent they're not approved immediately, then you would expect an amended filing that is then approved. So I think the ETFs are coming in the United States. That's to catalyst the price of the asset and the ETFs. And then I think it's entirely possible before the end of the year, we have a third. So if US Congress can kind of pull itself together, they may address themselves to a spending bill. And it may be the case that stablecoin legislation gets attached to that spending bill. These are kind of the rumors that that go around the hill. But if you have those three things, like I said, I call them catalysts, but I think if you get enough of them, you really start to pick up momentum.

SPEAKER_05: 21:43

Well, what about the U.S. presidential election? I think last week it was Vivek Ramaswari said that he'd fire the SEC if he was elected. I mean, does politics get in the mix of catalysts as well?

SPEAKER_01: 21:56

Yeah, and this is one of the strangest things that's ever happened to me in this job, right, is having to take a commercial interest in political outcomes. But yeah, so I mean, we certainly look at the US presidential election as another potential catalyst. A lot of things can happen, whether it's in the Senate or the House. And unfortunately, I would add, digital assets have become too much of a political issue in the United States. It's really an issue that I think has to do with national security and economic prosperity, which is something I think most Americans can agree on. But short answer, absolutely. What happens in the next election could potentially change the outlook for the industry.

SPEAKER_04: 22:35

So I want to go back a little bit to what you talked about, about stable coins. So I understand Fireblocks worked with the Australia government at some point to develop a stable coin. I mean, how do you guys look at CBDCs? What role do you think that CBDCs are going to play in the future of finance? Because, you know, different geographies, different jurisdictions they have very different motivations for CBDCs, right? It could be trade financing, it could be purpose-bound money, it could be for remittances, various reasons. So I mean, how do you look at CBDCs in a broader digital

SPEAKER_01: 23:09

asset background? So we made just a great hire, former Bank of England experience, and this role is focused entirely on CBDCs and promoting CBDCs. I think it's a really interesting idea, and I think what we will see will be a little bit of of a slow adoption curve. The reason I say that is because I think for all the reasons you've alluded to, CBDCs are a very specific thing to a very specific place a government might find itself in. I'll just take the U.S. context. I don't see the U.S. adopting a CBDC except on a wholesale level. The reason I say that is because of the structure of our central banking system in the United States. So you have a Federal Reserve, which is the bank to all of our major banks, right? So the Federal Reserve doesn't interact act with the public. And so it might make sense for them to digitize their interactions with the retail banks. But I think it makes much more sense for the United States, and I alluded to stablecoin legislation, to basically enable the retail banks themselves to issue coins, stablecoins. And I think these would function like a CBDC, right? So my point is to say that every government will find itself in a different situation and starting from a different place, right? a different infrastructure sort of place. And I think from there, they can decide what projects are interesting to them. So private stable coins are the way to go. I think we're going to see a really fascinating future with a proliferation of private stable coins. And I've already had calls with certain rating agencies that are excited. I mean, you can imagine, name the bank, right? It's like this bank's stable coin versus that bank with the rating agencies over the top, basically doing this assessment on their health and and they'll trade it. So none of the US

SPEAKER_04: 25:04

banks are making it. Exactly. So, I mean, we've had a great conversation so far, Jason. We've covered regulation stuff. We've covered stable coins. We've covered what Five Blocks does. We would like to just ask you for some of your parting thoughts. Any advice for our listeners who are trying to stay compliant whether they be running digital asset companies or trading on their own. How do they stay on the right side of compliance in this fast-moving world of digital assets?

SPEAKER_01: 25:38

Yeah, it's a great question. And a lot of companies are operating out there in gray zones, right? If you're going to be in the digital asset space, it's a good thing if you can tolerate a little bit of uncertainty, for sure. That's kind of the first thing. But no, I think there's a lot of help that's already out there and that's coming. Again, one of the things we're focused on where we see a lot of opportunity is in the proliferation of regtech and regulatory solutions. We've partnered with a number of companies, whether it's Nota Bene offering travel rule services or Elliptic and Chain Analysis offering these sorts of services. So there are platforms that are putting together a whole suite of services to help companies identify their obligations and stay compliant. And I think that process continues. Again, I think that's one of the really exciting areas to look at going forward.

SPEAKER_05: 26:27

Thanks for your time, Jason. It's been great speaking to you and hearing about what you do and what Fireblocks does. Thanks, Jason. Stay tuned for our show next week.

UNKNOWN: 26:36

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