Episode Transcript
[00:00:06] Speaker A: This is John Lothian with John Lothian. News with an interview I conducted with Prometheum founder and co CEO Aaron Kaplan and Thomas Sullivan, a managing director at Society General. The subject of the interview is blockchain, crypto regulation, and special purpose broker dealers. Here's my interview with Aaron and Thomas. How is blockchain technology going to actually upgrade or innovate markets? Aaron, do you want to answer that question? Yeah, sure.
[00:00:43] Speaker B: So when you think about it, the way that the Wall street works is really an amalgamation of different technologies that have been piled on each other over the course of generations. So technologically, there's a lot of inefficiencies. And by moving assets on chain, essentially it allows you to take advantage of all the efficiencies associated with blockchains that distribute it to other technology, like instantaneous settlement, better record keeping, et cetera. And what we've seen is that the current market infrastructure has a real difficulty transitioning from t two when there's a discussion transitioning to t one and how certain etfs would have major issues with that. And by transitioning everything on chain, I think you get ahead of that problem, or you get around that problem or solve it, because you'll basically have the efficiency of instantaneous settlement, which is where everything's moving. You'll have a better source of record keeping because everything will be on chain. And essentially, it'll allow markets to be what everyone has hoped for probably over the last decade or so since people have been discussing integrating distributed architectures into market infrastructure.
[00:01:44] Speaker A: So, Tom, from a practical standpoint, what do you think? Are you seeing some practical applications where blockchain is living up to the hype, as it were?
[00:01:57] Speaker C: Sure, and it's certainly not at scale yet, but I agree with the basic premise that Aaron laid out with respect to. And one of the things that I think is really compelling is that in the current marketplace, in the current world, you have not only the layers that are built upon and built upon each other, but there's a disconnection between those things. So with blockchain, and you think about, just say, when you go from trading platforms to clearing platforms to settlement platforms, to each firm's walled garden, where they maintain these records, there is no continuity of the data, there's no connection to the data. And it's just this end to end cycle where with a blockchain and using distributed ledger, you have the potential for the starting point and the ending point to agree to be the same so that everyone has the same information, the same source of truth, but you also have the ability to bring in different types of information and data that can't be done today. So an example, in a recent example is that Sockchen issued a green backed bond recently where some of the components of the performance related to ESG metrics will be available on chain. And that's the type of thing that is something that is unavailable today, where you can create new products that can perform in different ways and can provide different information that just simply doesn't exist today. So to answer your question, is it happening? Yes, it's happening. Is it happening at scale yet? No.
[00:03:34] Speaker A: What are the next steps that need to happen to make it happen at scale, and where is it going to happen first?
[00:03:46] Speaker B: I think what we're seeing is that there's been a lot of discussion of tokenization and transitioning of traditional securities to a blockchain or creation of different products that take advantage of the abilities of distributed architectures. But really for, in order for that to be optimized and used at scale, what you need is an actual market infrastructure that can handle the trading, clearance, settlement and custody of these products or of these assets, but all digital assets. And I think what we're going to see is that's coming online in 2024 with companies like Prometheum and Prometheum Capital, which is launching its special purpose broker dealer in Q one, which will basically allow for the clearance, the custody and eventually clearance and settlement of those digital assets. Furthermore, what you'll then have is marketplaces that will be able to then trade those assets. And once an asset is issued, as long as it could be trade, cleared, settled and custodied, that asset could be empowered. And we'll then see that transition occur where more of these real world assets move on chain traditional securities migrate to blockchains, and we see additional structured products come out.
[00:04:48] Speaker A: Go ahead, Tom.
[00:04:49] Speaker C: I was going to say to add to that, I think, because I agree with all those points, that on the one hand, among the core ideas of people who are in the purest defi crypto space is that people can self custody, and you have the access to do those things. The reality is that finance moves with institutions, and institutions need to be able to do things at scale, and managing a wallet on a phone is not something that an institution can do. So you need to be able to have the services. And I completely agree that there's benefit to having trades that clear, as opposed to trades that settle bilaterally instantaneously. But the other thing I think is really important, and again, this is sort of tooting SG Forge's own horn, in a way, is the cash component. So in order for the ecosystem to function properly and efficiently, you need to be able to have digital money.
And in Europe, it's becoming easier. And SGforge has issued its own stablecoin, and it was recently listed on a crypto exchange to enable the greater use of it. And the transaction that I referred to earlier, the green bond that was green note that was issued, was also settled partly versus the stablecoin. And not to say that stablecoins are the end all, be all, be all. There may be different types of digital money, whether it be CBDC, central bank, digital currency, or regulated liability networks, or the use of money market funds as digital money. Those are going to be key enablers to moving things to scale.
[00:06:37] Speaker B: And one more thing, which Tom just mentioned is regulation. And I think in America, what we're seeing at least, is the transition to federally licensed ecosystems, likely under the securities laws that allow for trading and custody of digital assets to be compliant, will be a major step forward and will allow for major scale and more institutional adoption, because I think it'll allow institutions to feel comfortable participating in the space. What we saw in 2022 is that there was a lot of nefarious and malicious activity, and it sort of met to a lot of institutions not feeling comfortable participating in the space. But I think that's worked its way through the system, particularly with the emergence of the spot etfs, as we'll see, and we'll see more of an institutionalization of digital assets, such that eventually those digital assets will be able to be offered in 401 ks and the like. And what will allow that to occur is those ecosystems that are licensed under the federal securities laws are on the federal level, which will allow those institutions to feel comfortable participating in the space from a compliance and regulatory perspective.
[00:07:42] Speaker A: Before we get into the regulation a little bit, I just want to ask a basic question about what digital assets qualify as securities according to the 33 act. What are some of the things that we could trade here as digital assets with the solution that you're talking about? Aaron?
[00:08:05] Speaker B: Well, the SEC has said that they view almost everything besides for bitcoin as a security, and the type of security it would qualify under the 33 act is an investment contract. And in the industry, there's been a lot of discussion about Howie, but an investment contract is basically an investment of money in a common enterprise where one anticipates a profit from the efforts of others. And I think that's the catch all that a lot, basically, almost all digital assets besides for bitcoin fall under. And that's the viewpoint that Prometheum believes as well.
[00:08:39] Speaker A: So we could be trading stocks, or we could be trading bonds, or we could be trading crypto x bitcoin. Yeah.
Okay.
All right.
So tell me about Prometheum here a little bit. So it got registered as a special purpose broker dealer.
What is that and why was it needed?
[00:09:06] Speaker B: So the special purpose broker dealer is the federal licensing for a digital asset custodian under the federal securities laws. And the reason it was necessary is because as transitioning of digital asset activity moves away from virtual currency exchanges and state licensed custodians, there needs to be a place where that actually can occur on the federal level.
And Prometheum capital at the moment is the only special purpose broker dealer, which is the only federally licensed blockchain custodian under the securities laws. And in order for trading to be empowered, you need to have the ability to handle what happens after a trade is made, meaning the clearance, settlement and custody of those assets. And I think that having special purpose broker dealers who have those capabilities will really enable sort of the transition to the federal level to occur, will enable investors to be properly protected, will allow institutions to feel comfortable participating in the space, and should really lead to an excellent 2024 for the digital asset industry as a whole.
[00:10:08] Speaker A: Have we seen some examples where the SEC has come down on firms that weren't registered as special purpose broker dealers because they were trading or trying to clear or otherwise do things that they weren't registered for?
[00:10:27] Speaker B: I'd have to check, but I believe in almost every major regulatory action brought against any of the major virtual currency exchanges. One of the allegations, from a regulatory standpoint, is that they are operating as an unlicensed clearing agency.
And basically, while a special purpose broker dealer is not a clearing agency, it serves the function of allowing for clearance, settlement and custody of digital asset trades. And therefore, you can make an argument that those people who have had those allegations brought against them are best served by becoming special purpose broker dealers and therefore being compliant on the federal level under the law.
[00:11:10] Speaker A: So who is Prometheum then? And why did you decide that you needed to become a special purpose broker dealer in order to do this? Why not do the state licenses the minimum required? It seems to get into the business.
[00:11:26] Speaker B: Yeah.
The easiest path towards revenue is not necessarily always the right path. And what we saw historically was that a lot of entities were putting their P L or their own revenue interests ahead of their customers best interest when it came to providing proper investment. Investor protections, fair and early markets, proper segregation and custody of their assets. So what you're seeing is that by having special purpose broker dealers come online, essentially you will allow all of those issues that have occurred historically to be absolved and basically investors to be properly protected and the american public to responsibly participate in the digital asset space, which is really what everyone wants. I mean, we've seen a major impasse of the industry where they say there's no regulatory clarity, or where there's this issue or where there's that. But the reality is, I think what everyone wants is a responsible way for the american public, or for the public as a whole to participate in the digital asset space. And I think it's through the federal level and federal compliance, or compliance on the federal level that that responsible participation can occur.
[00:12:33] Speaker A: Are there any other special purpose broker dealers or any others in the pipe that you're aware of? And why haven't others sought this registration category out?
[00:12:48] Speaker B: I think that there's probably a lot of people who are trying to obtain the license. I think that one of the reasons that we were able to be successful in our pursuit of obtaining the special purpose broker dealer license is because one, we always believe that the federal securities laws are the best framework to regulate the activities surrounding digital assets. So when the regulation came out in December 2020, we submitted a comment during the comment period, and then when it was adopted into the federal register, meaning it's an actual law in the United States in April 2021, we got going. We spent, I think, twelve to 14 months putting together a 700 page application.
We spent another, at least that amount of time, if not more, building custom technology to meet the specific parameters of the regulation. And basically through the belief that the federal securities laws were the best framework and building technology that met the four corners of the regulation, and putting in the effort to get license under the securities laws, I think we were able to distinguish ourselves. But I think what you'll see is other special purpose broker dealers come online, which is actually great, because what I think is going to happen, you'll see the development of a national market system for digital assets similar to as there is for equities, which is the best way forward.
[00:14:06] Speaker A: When are you going to launch? What's the plan?
[00:14:11] Speaker B: Q one for custody and then trading institutional and retail thereafter. But it's interesting because we're basically the infrastructure, the infrastructure by which trading and custody can occur. But from the other side of it, it's interesting to think about it from the issuer and the product creator standpoint and maybe Tom could speak better on that as to what having such an ecosystem in terms of having an infrastructure that will allow assets to be empowered, that will do in 2024 and going forward. On the institutional side.
[00:14:48] Speaker A: Yeah, Tom, when you look at Prometheum, what's the opportunity that you, I mean.
[00:14:56] Speaker C: Clearly they're the only one, right? There's been a gap in the market.
When you think about, and as Aaron has said, where the line falls with what's a security and what's not, when the business that we're in, we are a bank, 160 year old bank, we're interested in financial instruments. There is no ambiguity that we're interested in securities and the issuance of securities and seeing the propagation of those markets. So it's something that's welcome to us to have a regulated player who's doing things the right way, taking the right approach. And we're looking forward to having that marketplace where different products can be traded. These types of products can be traded, but also where customers can come on board and get the protections that are required for them by law or by choice, so that they can securely custody their assets. And there's a gap in the market. And you talk about your previous question about adoption and moving to scale, certainly in the United States, one of the big challenges is that there is not real ability to custody beyond. There are some players who can do and are able to do crypto, if you think about that narrow scope. But when you think real financial instruments, real securities, there's not many options. So it's really welcome news.
[00:16:30] Speaker A: Let's talk about the ATS a little bit. How does the ATS work?
And does Prometheum trade against its customers like some of the other exchanges do?
[00:16:46] Speaker B: First off, Prometheum does not trade against its customers. It's an area which leads to arguably certain conflicts, and we have always thought best to stay away from significantly. But in terms of the ATS, Prometheum ATS is basically an ATS that's allowed to publicly trade digital assets. And the publicly traded means you could both do institutional and retail. And the idea is you want to have an actual public market that has real depth of order book, that has real liquidity. And what we've seen historically in the space is that the ATSS in the digital asset space are private share markets, which means it just matches buyers and sellers who are credited and institutions, and they often do settlement off of the platform. So by Prometheum, ATS being connected to Prometheum capital, meaning the special purpose broker dealer, essentially, you have an ecosystem that's empowered where you can trade and follow the trade, the lifecycle after that trade and custody that asset. So the idea there is to create an entire ecosystem that allows for the issuance, trading, clearance, settlement and custody of digital assets under the feral securities laws, which is what we think will genuinely empower that tokenization, sort of the institutional adoption and basically the transition of traditional securities, or the migration of traditional securities to blockchains and distributed architectures.
[00:18:15] Speaker A: Will you have market makers of any kind on the platform?
[00:18:20] Speaker B: So the way, in terms of Prometheum, ATS is an ATS, as the name says and said, it's not a national securities exchange. National securities exchanges have market makers which have a certain regulatory designation. Prometheum ATS will have liquidity providers, but not market makers. Now, one of the things that's interesting about an ATS versus a national securities exchange is that an ATS chooses which assets it wants to support, meaning it chooses the assets it wants to support trading in based on its customers needs, whereas a national securities exchange needs to works directly with the issuer to list those assets. So it gives the ATS a little bit more flexibility in terms of which assets it could support trading in. And that's the only reason I don't say list, because an ATS does not list assets, but essentially it's the equivalent based on the needs of its customers not working with the issuers.
[00:19:12] Speaker A: Tom, is the ATS something that's going to be useful to you and what you do at?
[00:19:21] Speaker C: You know, having the ATS? And I think that Aaron makes a good point about, because there are some that exist, and I think that there are people who have had good ideas, but they do lack real liquidity. So I think that what we're hoping for as these ecosystems build is to have venues such as Prometheum, where assets can trade and really trade, not just to say that they're available in name to build those capabilities, to be able to list more product, to do more interesting different types of instruments, but also to make them available to different types of customers. And I would say what's interesting to all of us is you want to be able to have greater market for the products that you're engaged in, and this is certainly a way to do that, to have ATS make those products more widely available.
[00:20:24] Speaker A: Tell me about how the settlement and clearing work a trade takes place on the ATS, and then what happens?
And then the other question is, can trading take place in other venues and use your clearing and settlement process as well?
[00:20:48] Speaker B: So overall, when you think about the migration of digital assets to federally licensed ecosystems under the securities laws, you have to view it as a crawl, walk run approach. So Prometheum Capital currently is licensed to custody digital assets on the federal level, and we anticipate receiving the ability to clear and settle the trades that occur on Prometheum ATS in the very, very near future. And what that means is that once that clearance and settlement approval comes in, you basically have the ability to have trades occur, public trades occur with real to order book on the ATS and have those trades cleared and settled at special purpose broker dealer and those assets custody at the special purpose broker dealer. And what that means is at that point, you've basically built a public market trading and custodial infrastructure for digital assets, which is, I think, a thing that people have really been waiting for. Because in order for the migration to the federal level to occur, in order for the migration of trading away from virtual currency exchanges and away from state custodians to federally licensed atss and special purpose broker dealers, you basically have to have that infrastructure, meaning the ability to publicly trade, clear, settle in custody of those assets. And that's what you have with Prometheum ATS and Prometheum capital. And we think that that will really allow digital assets to be empowered in 2024, which will lead to a better relationship with retail investors and larger and more rapid adoption by institutions.
[00:22:22] Speaker A: So the clearing and settlement piece, from a Sockgen perspective, is this going to work for you, and is the Prometheum capital going to be a big enough entity for your clients to want to use, or is this something that they're going to have to bulk up or partner with somebody else, or how's that going to work in the greater scheme of things?
[00:22:49] Speaker C: The short answer is, I hope so.
Until everything is live, you can't say for certain, but I believe that what clients want is to be able to integrate seamlessly into their infrastructure and into their means of trading and their means of doing things, and particularly large institutions, that's kind of what they want to be able to do. So when you have organizations like Prometheum that could offer these services and it could offer seamless end to end services, that's the type of thing that will really go a long know. U. S. Banks are currently constrained in doing these things by other SEC regulation, which makes it difficult for traditional custodians to offer custody to traditional buyside firms. So there's an opportunity there.
[00:23:52] Speaker A: Aaron, does Prometheum own any digital assets, and will those, if you do will they be in the custody facility?
[00:24:02] Speaker B: Prometheum does not own any digital assets.
[00:24:06] Speaker A: Okay.
[00:24:07] Speaker B: The goal here is literally just to be the infrastructure, the licensed infrastructure, which allows initially the trading of crypto X bitcoin under the securities laws, but then beyond that, empowers the tokenization of real world assets, the migrations of securities to blockchain ecosystems, and also the creation of the products that meet the needs of the institutions that are creating them. So I think that it basically will provide that ecosystem by. It's dangerous when platforms own virtual, own digital assets, or when they trade against their customers. I don't know if that has the purest intentions there. So we've made sure to stay away from all those types of activities.
[00:24:53] Speaker A: And you have no plans to issue your own digital currency as part of this plan altogether? So there's no Prometheum coin or anything like that?
[00:25:05] Speaker B: No. I think what we've seen in 2022 and the sort of rapid contagion thereafter is platform tokens, whether it's, you know, there's been some discussions about BNB for binance, have the ability to introduce a lot of variables that aren't necessary when you have a infrastructure, and probably not even possible when an infrastructure is licensed under the securities laws.
[00:25:39] Speaker A: Don Wilson was recently in the Middle east, and he was asked at the Milken Institute conference about digital assets and blockchain. And he's still as excited as ever about blockchain. And he was talking about one particular blockchain that, I can't remember what the name of it was, but that was doing great things.
What's your favorite real world example out there other than the one that you mentioned for your bond? Tom, are there some other real world examples out there of blockchain that digital assets that you could see working into the prometheum system.
[00:26:20] Speaker C: As Aaron mentioned?
Well, firstly, if you think about most digital assets that exist currently as being securities, a token was issued to raise money in the form of whatever it happens to be. I think there's an opportunity, but coming from a more traditional financial system, there has been, and now we've been part of, the european investment bank has issued, and we've been part of several of these.
They've issued supernatural bonds, notes in various formats, whether it be ethereum or whether it be through HSBC or Goldman Sachs. Also, they have their own platforms that they're doing these things. So I think that certainly that's the type of thing. And there's been in Asia where there's been a number of issuances as well. And I think that in the United States, what's really been a limiting factor is the ability to do the end, to end things that need to happen, for security tokens to settle and to have the right infrastructure in place. So it's really a matter of, you can see what the use cases are, you can see what a number of firms have done and have been able to do, and it's just really the scaling that we're waiting for.
[00:27:42] Speaker A: Aaron, a while back, Prometheum's name was raised in some Washington hearings or meetings or whatever. It seems like you had attracted some attention there because of being approved for this special purpose broker dealer. What was it that attracted the attention of some of the Washington players to your being approved for all of that? Do you think a lot of the.
[00:28:11] Speaker B: Issues surrounding digital assets at crypto have been politicized?
It seems to be that it's a left versus right type consideration, as opposed to what's the best way forward to allow the american public to responsibly participate in the space. And our approach was that we believed the federal securities laws were the best framework by which to allow that participation.
And when those rules came out, whether it was the three step and four step releases on the ATS side, or whether it was the special purpose broker dealer release which was adopted in the Federal register, we decided to follow it. And by putting our head down and doing hard work and creating original product, an original technology, original documentation, original procedures, and everything that's required in order to get the approval, I think that it injured or it was negative to a lot of people's thesis that the federal securities laws couldn't properly regulate digital assets.
And on that front, I would say the federal securities laws were able to handle the transition from paper to electronic trading. Why can't they handle the transition from electronic to digital? So I think that, I don't necessarily know if people disagreed with us in terms of the approach. I think they just were very anti, because it was contrary to the mainstream thought process and approach at that time.
Since that testimony, which I believe was in June of this year, I think the mentality has sort of evolved a little bit, and the paradigm continues to move to where people have come to accept and understand that regulation at the federal level is occurring and that the federal regulations apply and must be complied with.
[00:30:09] Speaker A: What do you think the environment is going to look like, though, if we do get some new federal legislation about digital assets? Where do you think the changes will be? And how could they affect Prometheum and.
[00:30:26] Speaker B: The special purpose broker dealer, Prometheum has always maintained and really focused on compliance and whatever the changes will be, we will have to deal with. I'm not sure you'll see any sort of, I doubt you'll see any sort of comprehensive type federal legislation when it comes to digital assets. You might see certain pieces being regulated. You might see something about stablecoins or certain sort of different means of achieving new activities. I mean, stablecoins, you could argue, are a different means on the cash side. That has occurred historically, where historically what you've seen is the government being the backer of that asset. And there's a layer of abstraction there when you have some sort of private issuer using USD maybe as the backing, but essentially it's not directly tied to the US government. So that makes it a little bit more abstract. And I think you'll see if legislation anywhere on the federal level, you'll see it more there. But I don't think on the federal level, particularly given that it's an election year. On the presidential side, I don't know if you're going to see a lot of activity or legislation dealing specifically with digital assets in terms of the trading and custody. And I think absent that legislation, what you'll see is the regulation on the federal level, most likely by the SEC. And if you think about it further, the way that the general public interacts with crypto right now is quite similar to how they interact with equities and the SEC in terms of girth and size and capabilities. Between the SEC and FINRA, I think has 10,000 people and has a history and understanding and ability to deal with retail type products.
Whereas the other side of that argument is, you might say the CFTC, but between the CFTC and the NFA, I believe they have 1100 people. So giving someone that mandate would essentially put a lot of burden on any sort of agency that basically would have to sort of adjust and deal with it. And I think in that respect, in terms of the type of products they deal with and their size and their not ability, it's not the right word, but their capabilities, I think that the SEC is probably the right choice there, or is the right choice.
[00:32:58] Speaker A: Tom, that's kind of the opposite view of a lot of people that have always wanted the CFTC to be the regulator because they feel like the CFTC is a little bit, maybe easier to deal with or softer or something. Although Rossimbenham has certainly tried to negate that view.
What do you mean?
[00:33:21] Speaker C: Maybe I'll take it from a different angle that I think firstly, you mentioned stablecoins, Aaron, and I think that should be low hanging fruit.
And that is a case where it does sort of fall outside.
Is it a crypto asset or is it a security?
It's a crypto asset that behaves in a different way. And I think that there needs to be guidelines for there to be proper actors, because I think that it's important for us to be able to rely upon, I mentioned this before, for us to be able to rely upon settlement in the ecosystem, to do digital settlement, real digital settlement in real time, you need some form of digital money. And so I think that if I working for a european institution and having that experience, the european regulators have put forth the Mica regulation, which is markets and crypto assets. And one of the things that it's clearly defined is what you can do to issue and maintain a stablecoin. And that's what Sgforge did when stablecoin was issued earlier this year. And actually when the rules became more clear, it's been revamped so that it's already compliant with the rules, even though they're not coming online until June of next year. And I think that regardless of which regulator, I think that there are pros and cons to each. I think that the CFTC has done a good job of trying to understand the issues, to make better informed decisions about how marketplaces should operate. But I also do think that another example perhaps would be, and this is not just an opinion, but I think that the GAO recently reviewed one of the rules that the SEC had come out with, which is SAB 121, which requires publicly listed companies, including banks, to maintain digital assets on balance sheet. And that's one of the limiters for institutions to offer those type of services. And there were some questions about whether perhaps that would need to be reviewed by Congress. And if Congress does take that up, then perhaps there will be some changes there that are clearly to address something that was brought up under the purview of Congress. Now, how that shakes out, who knows?
[00:35:59] Speaker A: One last question here. One of the major issues in everything in digital assets is around cybersecurity.
So first off, Tom, from your perspective, when you look at a new enterprise that you want to engage with, what are your concerns and what do you look for in terms of cybersecurity protections? And then, Aaron, what have you done to make sure that prometheum is bulletproof?
[00:36:28] Speaker C: Yeah, sure. I mean, cybersecurity, especially in this space, is a paramount concern. And in general, we have a very comprehensive third party risk management process that is even more comprehensive. I'd say for folks who were in the digital asset space because of the real and perceived, in some cases, the concerns are, I would say, maybe misguided. In some cases, they're real. And it's like figuring out. You really have to look at things not only from the existing framework of how you acquire a system, or how you partner with a vendor or partner with another firm, but also the different types of risks that you face with blockchains. And you can think about network forks and those kind of things, airdrops, that could have an impact that don't exist in traditional relationships. So you need to consider different factors that kind of directly or indirectly have the cybersecurity concern.
[00:37:39] Speaker A: And, Aaron, what have you done to make it bulletproof?
[00:37:44] Speaker B: I don't know if anything in life is bulletproof. I think what happens is they just make the glass thicker, and then they make a bigger, stronger bullet. So it's a cat and mouse game.
But I would say that the easiest answer there is, we've followed the regulations as laid out. If you think about it, historically, when you have all these different custody platforms, there's no regulation as to what they have to follow. There's no guidelines, there's no oversight.
There's no one to report to. There's no one to making sure that you're following rules. There weren't even rules that you had to follow abstractly. You were just creating a technology which was then obtaining a license differently. So I think by following the procedures, lay down the regulation, at least you have the beginnings of, and the framework and necessary as a basis on how to proceed. Beyond that, you have to have the procedures, different type of both online and offline procedures in order to make sure that your systems are secure. And I would say, beyond following that, having the continuous oversight, the continuous reporting, the continuous examination requirements from the regulators, helps ensure that.
I think the lack of standards when it came to, historically, with all the hacks, starting back, back in the day with Mount Gox, most of the hacks have actually come from human error, not from cyber error, but essentially because they were just sort of making up the rules as they go.
It led to certain standards falling below what they were, or maybe not ever being what they had to. But by having proper regulation, following those standards, and having proper oversight and ongoing sort of reporting requirements, I think you're able to at least be as bulletproof as possible.
You're able to basically put yourself in a position where you are very strong from a cyber and information security perspective.
[00:39:51] Speaker C: One of the things the special purpose broker dealer guidelines really did spell out, and thoughtfully was the types of risks, specifically, I think the types of risk that you would face in that role that you may not face in traditional firms. So that's something that, again, that's the point earlier, that when you have firms like Premiere team who have passed muster with going through finrant and getting the approval, it's because you've done things to take into consideration those factors which perhaps wouldn't be specifically thought about by traditional broker.
[00:40:30] Speaker A: I think, you know, one of the problems that some of the firms have had in this space is that there's been such traumatic growth at times that they have to hire new people and getting them trained properly is an issue because you're trying.
[00:40:54] Speaker B: Are you describing what would happen if the CFTC got the ability to regulate crypto?
[00:40:59] Speaker A: No, I'm describing what would happen if you had dramatic growth and you had people that were not properly trained and you had a situation like with ledger like this last week, where you had a phishing problem from an employee as opposed to a problem with their technology. Right. And so when you're bringing on that many new people because you're growing so fast, those are the types of problems that you run into. And to your point, that it's a human error problem as opposed to a technology problem, some of those things are just kind of natural things that come along.
So you have to be aware that growth is a problem, and hiring an economy that is at full hiring capacity is a problem. And all these things can be issues. Right.
[00:41:57] Speaker B: I think when you think about it, what we have is there's a Silicon Valley mentality historically, where it says build fast and break things.
[00:42:04] Speaker A: Right?
[00:42:04] Speaker B: Rinse, repeat, keep on going. But when you're dealing with people's money, when you're dealing with the custody of their assets, the standard is different.
Basically, you're dealing with their livelihood. If you think about it, money in some sense is a quantification of time because it's what people spend doing in order to earn it. So essentially, you have stolen those people's time. So I think that by having regulation on the federal level and having standards of regulation and oversight and ongoing enforcement of that regulation, it eliminates not all, but the vast majority of those problems, such that you have people's time, effort, money properly protected in order to make sure they can participate in the space in a fair and orderly fashion. And that's what everyone wants.
[00:42:48] Speaker A: Tom, any final thoughts here today?
[00:42:52] Speaker C: No. I mean, I think this is great to be able to have the discussion. I really welcome and thank you for the opportunity, obviously. Always nice to talk to you, Aaron. So, yeah, thank you, Aaron.
[00:43:04] Speaker A: Any final thoughts?
[00:43:07] Speaker B: 2024 is going to be a good year for digital assets, both on the transition from, I say this in my Don King fashion, crypto being regulated on the federal level and markets being innovated with sort of traditional securities migrating to blockchain, more sophisticated products coming out on chain, and also the tokenization of real world assets. So I think 2024 is going to be an excellent year for digital assets as a whole.
