Who's ever the chairperson of the SEC. Whatever the regulations are will follow.
When we started, it was when Clayton was the chairperson of the SEC right
and he was a Trump appointee and essentially he was the one who came out
with the special Purpose Broker Dealer release. So you know, whatever the regulators
say, our whole position has been will follow it. That's why it has
taken us arguably a long time, because regulations weren't clear, and you know,
you have to work with the powers that you know, the actual regulators
in order to make sure you obtain the licenses if your belief is that's the
way to do a compliant This content is brought to you by Uphold, which
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about Uphold, please visit the link in the description. Welcome to the Thinking
Crypto podcast. You're home for cryptocurrency news and interviews. With me today is
Aaron Kaplan, who's the co CEO and co founder of Prometheum. Eron.
It's great to have you on. Hey, Tony, thank you for having
me so erin big news around Prometheum. There is a big launch taking place.
I have a lot of questions for you about your services and much more.
But before we get to Prometheum, tell us about yourself. Where you're
from and what's your professional background. So I am from New York, I
grew up in Westchester. My backgrounds in financial services, and I am a
class trained as a securities attorney, which was obviously very interesting and useful in
doing what we're doing. And since essentially, I believe twenty thirteen, i'd
focused my securities practice the application of distributed ALLGRIC technology to the securities industry and
really the related regulatory issues now. At the time when we first started,
and people weren't necessarily considering the sort of the crossover between what at the time
was bitcoin then became virtual currency, and then became sort of smart contract enabled
network tokens, then just expanded from there, and they weren't considering the implications
from sort of a regulatory standpoint. But essentially, since we got into the
space, since reading the Biitcoy white paper, you know, and really believing
in the technology, we had focused on sort of the best way or a
proper way to allow for participation, meaning trading clear and set on the custody
of the general public in the space. And we initially wrote a no action
letter to the SEC in April twenty fourteen asking them to allow us to transact
bitcoin as a security through an ATS and a brokerage account. And the whole
idea there was that the federal securities laws provided an excellent framework to allow for
participation in the space that would allow the general public to be properly protected.
So from there that's where we started, and we went down a deep rabbit
hole. And what was your first encounter with bitcoin? I'm almost curious about
folks history and story about when they first encountered bitcoin and what was the aha
moment for them, you know, when reading about reading the white paper and
going into it and listen, I'm a security attorney, I'm not an engineer.
You know, anybody who doesn't have a deep engineering background or even had,
you know, as major you could only go so far, but you
could understand that there was a lot of potential to innovate how data and value
was transacting on a blockchain as the basis for that. But essentially so after
reading that, it was sort of aha moment, like, oh, this
is going to change how securities operate. Because the thought was is like securities,
if you look at the history of security securities are initial paper securities,
make certificates, they transfer like eventually they they transitioned to electronic sort of trading,
which is basically a electronic representation of a physical certificate, but it's still
based on the physical certificates. But the next generation beyond that is to be
pure digital, meaning having the asset issued on chain and transferred on chain and
overall in the security space, the idea is sort of like the Holy Grail
is a tady settlement. It t zero. It just eliminates a lot of
counterparty risks. So the thought process was by integrating the benefits of distributed architectures
into market infrastructure, what would you what you could achieve is really the holy
Grail of markets, meaning you know, insanitaneous settlement and basically the ability to
trade clear settling custody on a blockchain was the goal when we started the company,
and as I mentioned before, we wrote our first no action letter to
the SEC in twenty fourteen. You know, it was a little bit progressive
in its thought and nothing became of it. But since then, you know,
we I focused my practice in the space, and as the different technologies
developed, as you had a smart contract enabled network tokens come out, you
know, and initially with the ico boom and the like, there was a
conflation between the what I saw as an opportunity between the technologies attendant to virtual
currencies and sort of how markets worked. So while I'm not the biggest bitcoin
person, I do believe in a lot of the smart contract based network tokens
and their viability as a means of processing data, and think that the conflation
between those technologies and markets is really the future of where everything's going. Now.
Giving your securities background, and we see the talks of tokenization and putting
stocks, bonds of real estate on the blockchain and the ability to do that
is because of smart contract technology. What is your outlook for the future is
of the future of securities. You know, you have a timeline for when
we see all these things token as you have like Larry Finger at black Rock
talking about it saying it's a future of finance, and is Prometheum trying to
position itself to be able to meet the market needs there. So prometheum is
sort of interesting because it allows for potential disruption into different parts of the market.
So on the virtual currency side, the idea there is just basically what
people call virtual currency and everything besides for bitcoin, arguably we view as an
investment contract that is a digital asset security and basically you're able to treat and
trade it, treat and trade clear selling custody of that asset by providing the
benefits of the feral security as law as such that investors are protected. So
that's one side of the market. But what you're referring to on the other
side, which I think is like a big driver of future growth, is
this tokenization idea. So when you think about tokenization, now there's fringe cases,
so it says not one hundred percent, but tokenization is arguably security is
out of blockchain. And when you see people like Larry Fakett, you see
people, you know, the big banks talking about how tokenization, meaning security
is out of blockchain, is essentially a billion dollar market. I know that's
not a word, but you know they say crazy numbers. You know you're
talking. They're talking about trillions of dollars, right, And that is I
think which will drive what will drive a lot of the future growth, the
institutional adoption, the institutional participation, because it really provides a mechanism by which
institutions could arguably generate compliant revenues in the space. If they can issue a
security on chain, they know it's regulated, there's no regulatory compliance issues,
and basically now they can sort of transition their business away from traditional means of
sort of creation of securities, trading, clear sellment, custody to on chain
activity and now that they can generate revenue from it, there's significant more and
more significantly more interest. But if you take it a step further, like
in people talk about tokenization, but in order for tokenization to be empowered,
tokenization is the creation of the asset, but you need to be able to
do things with those assets thereafter. Yeah, I mean, if you can't
do anything, it's a liquid there's no public market trading, there's really no
activity there, right, So what Promethium does is basically everything after the asset
is issued. We then provide a public market infrastructure, meaning an ATS for
digital ASEID securities that can publicly trade digital assets digital asset securities, I should
say, which means that there's depth of market, there's liquidity, it's real
trading, right. But in order for that to occur, like you can't
have public market trading unless you could also do what occurs after the trade is
made, meaning clearance, settlement, and custody, and we've through our special
purpose broker dealer are have the licenses and the authority to do those activities.
So basically, in that sense, we can provide a sort of a infrastructure
that will allow tokenization to take flight actually meet its potential because the asset could
be created and then it can actually be publicly traded, cleared, settling,
custody, meaning everything else that has to occur to really allow tokenization as a
whole to move forward, which we're very excited for. And you guys have
a FINRA appro to clear and settle digital asset security trades along with custody.
And then the big news, which folks you're going to hear about, is
the Ethereum custody launch. Tell us about the FINRA approvals and the Ethereum custody
launch. So I believe it was in December Prometheum Capital, which is our
special purpose broker dealer, received the approval to clear and settle digital acid securities.
So when you think about markets, you have a trading venue and you
have a custodial venue, and what occurs in between, and this is a
very simplistic explanation, is the clearance at settlement. So we had the ability.
I think we received the license for our ATS with Prometheum ATS and twenty
twenty one, and we received our special purpose broker dealer in May twenty twenty
three, I believe. But in order to do that piece in between clear
and settle and really have the ecosystem as a whole makes sense, you really
had to have that final approval. And once we receive that, now basically
we have the approval to have an end to end blockchain enabled ecosystem for digital
asset securities now and really overall that's the last approval pro medium needed before we
could launch this whole ecosystem and really service the entire life cycle of the trade.
Now, one thing that's it's a little bit nuanced, but it's important
understand, is that our license are for digital asset securities. A digital asset
security is both what a lot of people would consider virtual currency ex. Bitcoin,
which we basically consider investment contracts, which is a qualification type of security,
but it also includes any sort of thirty three Act security, which includes
equity, debt option, destructured products. And that's that tokenization side. So
you could service both sides there. You could service both the virtual currency which
we view as investment contract digital a SID securities, but also of any sort
of security issued and transferred on a blockchain, which is basically the entire tokenization
universe. So, uh, it's really expansive and I think that that is
why I think we have the potential to disrupt a lot of sort of different
parts of the market. Now, you mentioned and Aaron, we're going to
talk a bit about this. You know, you mentioned digital asset securities.
A lot of people in the crypto industry disagree with you on that, right,
but your Etheroereum custody launch. Are you treating etherorem as a security?
Are you viewing as a security or commodities is similar to bitcoin? So you
know, it's an important question, and honestly we're super excited to roll out
our Theorem custody launch because it's a pivotal moment not only for Prometheum, but
I think for the broader industry. So as I mentioned the expansive nature of
our Digital Aid Securities license, and that basically means we can handle investment contracts
which are digital acid securities, and we can offer services that are internal to
assets that our internal compliance seems confidences security and basically we are confident in this
case and for purposely for these purposes we started with Ethereum now but looking at
the bigger picture, like Promethium, in some senses, doing something that's never
been done before, and by doing with e the most popular token besides for
bitcoin, which is obviously bitcoin is a security, as the SEC and other
regulated entities have said. But basically what we do is we hope to establish
that the existing federal securities laws are applicable to most digital assets and investors can
safely engage with them under existing regulatory frameworks and sort of this is significant for
the I'm sorry, go ahead. There's a lot of like, no,
no, you mentioned bitcoin as a security, but I thought even answer is
not a security. Oh okay, Bitcoin's the only one that's not a security.
But like the and then it's like the question of what happens with everything
else? Right, But the origination and the inception of bitcoin is followed a
different model than almost every other asset thereafter, So I think that's a distinguishing
point. And while in theory you could technically and from a operational standpoint handle
bitcoin, whatever the regulators say, we try to follow. So everything else
besides for that is potentially open business. So Aaron, I mean, I
mean, I think it in a sense because you have this license, regardless
of if something's at security or not, you have the ability to custody securities.
So right now, you could list a lot of cryptocurrencies if you want,
right because you have to license. Am I Is that correct? Am
I off base? There? Yeah? No, We view the majority of
the highest volume of traded assets as digital asset. Security is when it comes
to virtual currency, and honestly, we intend to make them available as quickly
as possible, because you want to be able to support the largest and most
liquid tokens. And we start off with number two. And while our initial
focus is on this investment contract digital assets what some people would say crypto,
the next thing, the next step which we really think will drive future growth,
is the tokenization side. And as I mentioned before, that basically means
securities issued and transfer out of the blockchain. And you know, while as
you mentioned before with Larry Fink, there's a lot of discussion about tokenization being
the next big thing in finance, you know, at quadrillion dollar market,
that's actually a real term. But essentially in order for that market to be
empowered, you need that infrastructure, and that's the infrastructure we've created. So
basically we believe that we can empower that that discussion that mister Fike had mentioned,
what are your thoughts on You know, you mentioned, like you did,
number two, which is e theorem, And as you go down that
list, you have for example, XRP and you had that ruling in the
case. We know the case between the sec and Ripple is not fully concluded.
That's still I think there's a trial in April, but the judge rule
that XRP intrinsically is not a security depends on the scenario of how it's offered
up. Would Prometheum be looking to XRP as an asset that you would support,
It would depend how the measure played out in court. Obviously there's a
lot going on in the courts and that will play out in time. But
the way we viewed it is that what you're trying to do is just provide
an established an ecosystem, under established regulatory framework to allow the public to participate
in the space. And what we saw on the events historically, particularly you
know we're moving away from twenty twenty two, but essentially you need to have
frameworks, You need to have oversight, need to have the ongoing reporting requirements,
and you need to make sure that you know when people participate in the
space, they are able to do so, and that they're going to make
or lose money based on their own investment decisions and not because of the mouthfeasance
of the underlying platform. So I feel like it provides just a mechanism by
which that could occur. And it's not easy to get regulated under the securities
laws. It's a much harder approach. It's like it's much more difficult because
in one sense you're innovating by combining the two in some capacity. But beyond
that, you know, you have to go through the process. You have
to go through the regulatory process. And while it's taken us a long time,
you know, we started twenty seventeen, I think that by putting in
the effort, it'll actually allow for the innovation and markets people have been discussing
for discussing about for a long time. Now, are you servicing just primarily
institutions or are you looking to have a retail product? And apologize if I
missed that and do my research, but what's your plans as far as servicing
different types of clients? So our licenses allow for both institutional and retail.
The idea is to create a public market trading and custodial infrastructure for digital securities,
because if you think about it, if it's not a public market,
it's basically just matching illiquid shares, stocks, tokens, whatever you want to
say between a buyer e seller, and usually what happens in our space when
that occurs in you know, any sort of licensed digital asset security ats right
now, they do trading at one place and they do clearance and settlement in
another, and basically they do it offline. It's almost like an OTC trade.
And while that is definitely a step forward from what had occurred previously in
that you know, there was no digital asset securities ATS is. The goal
for us is real trading, depth of market, actual liquidity, and what
that requires is both institutional and retail participation. And what's on your roadmap for
twenty twenty four obviously huge launch right with the etherorem custody launch. Anything that
you can tell us that maybe down the line later this year. Yes,
first it's a custody eth will be the first asset that we are custodying.
And then after is obviously the adding addigital assets because you want to be able
to support the most liquid and you know, the largest volume tokens. But
beyond that, the next step is trading, first institutional and then retail because
you want to create this end to end blockchain enabled infrastructure for trading, clear
and settlement and custody of digital asset securities. And when you think about it,
it really is it has the potential to change a lot because you're going
to have the potential to change the thoughts or how certain processes are done with
virtual currency, but you also have it or digitalt you know, investment contract,
digital asset securities. But on the other side you have traditional markets.
And basically the goal of traditional markets I said before the holy is is the
Teddy settlement, and uh, you know that's what we've built in some capacity
is basically a blockchain enabled infrastructure that integrates the benefits of digital asset architecture into
markets to basically create a better Apple cart. So you have the potential to
disrupt both the virtual currency side and the traditional market side, which is pretty
cool. M And are you just servicing the US market or are you also
servicing countries outside the US? American born and bread so basically would eventually to
go global. I mean, so it's it's it's an interesting question if you
can think about, like I'm trained in American securities laws, right, our
bread and butter is American securities laws. So the first step, which was
a very high bar, is America. And we've seen a lot of companies
basically say, oh, it can't be dout of America. Let's go to
Singapore, Let's go outside the United States, let's go to the EU,
right, but American capital markets or the leading capital markets of the world.
And I think that's why, beyond that being our expertise, that's the area
we know, and that's the area we wanted to focus on now once we're
able to get everything going here. Obviously, the goal, which has a
lot of possibility to sort of compared to how traditional market's done, is the
internationalization of markets. So in theory, if you had different sort of entities
or partners licensed under the different securities laws, in arguably common law based countries
and which includes a lot of countries you know, Becau's the UK, because
Singapore, it includes Australia. You know it potentially could include places like Japan.
Like what you could have is really an internationalized system. We're able to
connect the buyers and sellers of digital assets under the securities laws, have all
the amlksc et cetera. And you know that is that would be awesome.
And tell us about your custody platform are is it you're proprietary custodial service or
are you using like an anchorage or a bit go or I don't know,
a bny melon or something like that. No, we basically some the Special
Purpose Broker Dealer release came out in Christmas twenty twenty. It was called the
Christmas Release, and as soon as that came out, we just put our
heads down. Essentially, we were like, Okay, you need to build
custom almost everything in order to get approved for this license. I mean you
have to build your own technology, you have to build your own operations,
your own compliance procedures, et cetera, et cetera, et cetera. And
the reason for that is it's never been done before. So I don't think
you could take a white labeled product and potentially get a lot SPBD license with
that. You have to basically build your technology within the four corners of the
regulation to make sure that essentially you are complying with how everything's meant to be,
meaning the rules attended to did asset securities under the SPBD release create specific
parameters that you have to meet in every level in order to obtain that license.
And historically what happened in the space is, you know, there were
different standards. It said, oh, you know, everyone built their own
custody solution, right, but you get LICENSERE, you get licensere, whether
it's the new York dfs or whether you get license to different states or in
different places, and it became a question of best practices maybe, and how
you think these standards and like different standards for custody. And what we saw
recently was the introduction to the potential change to the custody rule such that investment
advisors have to hold their assets on the crypto assets on we have of clients
at a qualified custodian. Now it gets really technical, but essentially the idea
here is to create high level standards for all custodians to be able to meet
in order to ensure that the public is protected. So we had to build
our own technology basically and do everything from scratched in order to make sure we
met those standards. And with the etherorem custody you're providing, are you going
to be able to offer staking to your clients or not at this time?
Oh, interesting questions. So we've seen regulatory actions which would basically arguably show
that staking as a service related activity implicates the securities laws. Right, a
lot of the different platforms have had to change or sort of stop doing how
they were Staking as a service. We have a lot to do, but
Obviously we've considered the different lines of business under the securities laws. But as
I mentioned for twenty twenty four, it's custody, launch, then trading and
we could go from there. Got it. Yeah, I know the staking
situation is tricky. So Aaron, I'm going to ask you some tough questions
because there's it seems to be a dichotomy between what you're doing at Prometheum and
the rest of the crypto industry. The rest of the folks have gotten wells
notices, We've got lawsuits. You know, you, for example, look
at a lot of these cryptocurrencies as digital acid securities. Other folks do not.
There's some of this playing out in the courts. Congress is involved with
certain conversations with Chair Againser, and is regulations being worked on. What is
your take on the dichotomy and how this is playing out? And and look,
it is an election year. I know this is an act question.
I'm asking you here. Chair Againcer may not be around if Biden loses,
right, So what is your take on this entire situation? Hi? Everyone,
part of the interruption. I'm Tony Edward, the founder and host of
the Thinking Crypto podcast. I have a huge favor to ask you. If
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to bring great quality content to you. Thank you for your support, and
I'll let you get back to the content. The whoever's in, who's ever
the chairperson of the SEC, whatever the regulations are, will follow. When
we started, it was when Clayton was the chairperson of the SEC right and
he was a Trump appointee and essentially he was the one who came out with
the special purpose broker Dealer release. So you know, whatever the regulators say,
our whole position has been, will follow it. That's why it has
taken us arguably a long time, because it regulations weren't clear, and you
know, you have to work with the powers that you know, the actual
regulators in order to make sure you obtain the license is if your belief is,
that's the way to do it compliantly. So you know, who knows
which way the wind blows. But whichever way it blows, you know,
it usually carries the plane with it. Aaron, what do you think about
under j Clayton would Bill him and Bill Hinman gave a speech. Jake Clayton
endorsed it up etherorem not being a security That seems to still be holding up
to this day. However, Chair Gencer has not reiterated the statements. I
know you just said, look, it just depends on the way regulations go.
But what are your thoughts on Etheroreum not being a security and Bill Hinman
and j Clayton's statements. You know, the Hindman statements were definitely interesting and
you can make different arguments about it. I mean, the way we see
it is that if you're going to follow Himan's statement, who's not a commissioner,
you would follow the commissioner's statement before you would follow one of his supportinates
statements. And Chairman Gensler has said basically he views almost you know, the
overwhelm majority of digital assets of our securities besides Vicoin. So we understand that
that him and statement was out there, but I think it was almost like
a head fake, right in some sense, it could be a disservice to
the industry because I believe if you look at the emails in one of the
cases, there's certain people in terms of the internal emails of the SEC are
saying, Hey, what you're saying is outside of what we believe. So
I think if you look at that from that sense, it might have done
more harm than good. Sure, yeah, by sort of deaking people out,
you made people zag when they should zig, and now they've like doubled
and tripled down on certain sort of viewpoints and certain feces that like that weren't
necessarily got to play out in the long term. M So it seemed like
Jake Clayton and Bill Hidman and screwed up there with this caused more fusion in
the market. And I don't know if it was Clayton though to my understanding,
I don't know if it was Commissioner Clayton, to my understanding, at
least from what the emails say in terms of the public emails from the from
the cases. I don't know if it was a top I don't think it
was a top down director. I think it might have been a viewpoint of
himman that was outside of the consensus viewpoint of the regulator. The thing is,
though, I and I've seen videos of Chair Clayton. You know,
at that time he was endorsing. He's like, hey, check, I'll
build him in speech. So I get what you're saying. It just seems
like the Chair stamp this his stamp of approval, despite him not being the
originator of this. I know there's other talks of conflicts and things like that.
I don't know if you're aware of these things of Bill Hinman and look,
and maybe I've never seen the emails I read him. I like,
you know, like that's not for me to really I don't know, Like
I understand that if there's conflicts, there's conflicts, and that's that's interesting.
M Yeah. Look, at the end of the day, I'm hoping we
can get clear regulations from Congress. They make the laws right and we can
put some things in order, and the SEC, the CFTC and whoever they
do their part and we can move forward. But right now it's just a
lot of ambiguity and confusion, and hopefully we can get these things cleared up.
Tony, let me tak it quickly on potential for new regulation. So
there's been a discussion for a long time about regulatory clarity, and it's in
the best interest of everyone. Basically, there's a path, let's just figure
it out, let's move forward. But I think people are waiting for a
new president and therefore potentially new potential chairperson to the sec or they're waiting for
new legislation, which you know, depending on how you view it. You
know, I think McCann has said he's going to was it leave Congress by
the end of the year, and which the market with the Market Infrastructure Bill,
So what are we doing. We're waiting at least a fifteen months or
so. But I think by actually custodying eth under the securities laws, you're
arguably moving the conversation forward. We don't have to wait fifteen eighteen months,
however long it takes to get regulatory clarity. And if your view if you
see Congress like let's make sure at first they fund the government before they they're
not going to be focusing on crypto legislation before they focus on the government,
And in a split House had Senate, I think we're going to wait for
regulatory clarity, if that's your viewpoint. But by what Prometheum is going to
be doing when we custody through OBDA capital eth I think you're moving the conversation
forward. You're basically saying, hey, like, these assets could be handled,
treated, and traded custodied under the securities laws. And while the security
laws might not be perfect for certain elements of digital assets, they are arguably
the best framework we've had. They've allowed American capital markets to flourish. It
basically allowed us, you know, we have the most vibrant and arguably the
best capital markets in the world. And the reason it is is because we
have integrity in our markets. And what we saw in the events of twenty
twenty two is when you don't have integrity, you lose the faith of the
public. You make institutions not want to participate in the space. So if
you're trying to achieve both those goals, basically use the best framework you have.
Yeah, And so do you think cryptoregulations are like maybe two years out,
Maybe it's twenty twenty Fybri twenty twenty six. I don't know if you'll
see any sort of comprehensive crypto regulation, Like you can make arguments for certain
areas about it. Maybe when it comes to stable coins at those pose different
systemic risks than I maybe have been historically considered. But when you look at
the sort of the investment side of digital assets, meaning people who are trading,
people who want to custody those assets, and basically the best way to
the methodology by which people are sort of interacting with the Web three space,
I don't know if there's a need to recreate the wheel. Like the securities
laws have disclosure requirements on the investor protection side, they have fair and early
market requirements which are meant to prevent manipulation on the trading side, and they
have specific rules for clear and settlement custom such that customer's assets are segregated from
that the institution, not just that. They force those places to go and
report and file reports and have ongoing overside and examinations, so you basically ensure
that those standards are being conforced. So I guess my viewpoint there is that
I don't think you need to recreate the wheel now. And I have some
awkward questions to ask you, and a lot of these things have been talked
about by various folks. I think you testified before Congress. We had congressmen
ask you certain questions. I have to ask, and there's talks of Prometheum
having deep ties to the CCP. Do you have relationships with Wang Dong Feng
and Long Link Capital and what ties and you know, are they invested in
Prometheum and what can you tell us there the two people you mentioned, I
have no idea who they are. I've never met them, never spoken in
regards to ties to the CCP. I understand that there's concerned there. And
the reason that there's concern is because when you're building market infrastructure, it's a
matter of national security. So I totally get it, and I believe me
markets are very important to America. When you look at America as opposed to
places like China, America's invest the significant part of their liquid capital in markets,
so they have a lot of welfare, right, So it's really a
matter of natural security. So in terms of like what happened historically, so
as a young company in I think twenty eighteen, we took an investment from
a company to hash a Hong Kong company called hash Key which was owned as
a subsidiary of Wangshong Wan Xia and G I believe, and the idea was
we take an investment and we're going to code develop, and we're going to
code develop this market infrastructure. Right. Don't forget this is a different time.
It's before sort of the decoupling between America and China. Right, But
you can start to see the way the wind's blowing. Maybe a year later,
and beyond that, we realize that this is not a viable approach.
So within a year eighteen months something like that. Thereafter we basically abrogate that
agreement. We basically have a contractual agreement that we're done with this, you're
no longer to do this, and we take everything in house, and not
just in house, but everything with American developers, meaning people here on an
H ONEBVS or based in America besides our CTO who's in the island man.
So that's just you know why, we'll qualification and we do everything internally.
And beyond that, we are in a position that, you know, this
is what we think is the best way forward, because as you're building something
that becomes more real, it's better for America, it's better for the company,
it's better for everything going forward. And then thereafter we basically also start
to get letters, meaning we have a inquiry from this SITHIUS, which is
the Committee Foreign Investment in the United States, which is basically meant to make
sure that foreign entities don't have power over companies or sort of you know,
important national security type companies. Right, we submit everything they ask. There's
no issues there, right, not just that we get a full on investigation
by the SEC. Right a formal inquiry we submit. We basically submit everything
that they ask and that inquiry was closed. So if you look at it,
you can make an argument that we're one of the most investigated companies in
that sense to make sure we don't have ties. And if you know,
if you extrapolate from there, it'd be interesting to see what other companies were
like. So like it's like, I understand the concern. It's definitely a
matter of national security. We take the exact same view. Everything we create
is our own, all our code is our own. We are not dependent
at all. Essentially, Hashkang highki Wangshong I own. I think owned as
an equity investor a percentage of the company, not where close to majority,
and basically they have the same rights as every other investor. God, I
got it. So you guys, like you said, went through their regulatory
scrutiny. All these things have been checked. I know, like you said,
you testified for Congress on these things. So there's no need for people
to be concerned with data and control and so forth. Like you said,
they're not a majority shareholder and so forth. Listen, I firmly agree with
that. I mean, you know, when you look at social media,
you can make weird arguments there if you get what I'm saying, and like,
yeah, it's interesting. Now, I believe you answered this question another
podcast. But folks seem to think that you're getting special favor from the SEC,
that maybe you know someone at the SEC, or your friends are Gary
Ginster or something. Another awkward question. But what can you say about that
in your relationship with SEC officials. So I saw one of the rumors that
I think Chairman Gainster's my uncle. Maybe that was a funny one because we
look so alike essentially, but it's actually, like, listen, I get
it. People have been spending a long time trying to figure out how to
be compliant under the securities laws, and I think we were in a unique
position because it was always our thesis since we started in the first O actually
letter of twenty fourteen basically that the paral securities laws what we thought were the
best framework to regulate the activities in the space, meaning the intermediarrea is a
trading, clearance, settlement, custody right to ensure that investors are protected.
And when the regulation came out, this SPBD release came out, I believe
in December twenty twenty, we were like, we'll basically called hell yeah,
because we had we were doing the ATS for the goal was public trading through
an ATS for digital assets right digital asset securities. But in order for that
actually to occur, you need to be able to do what happens after the
trade is made, do clearance, settlement and custody. So when the SPBD
release came out, we're like, oh, this is how you do the
rest. This is the regulation by which you do the rest. So it
comes out in December twenty twenty and there's a comment period which we submitted a
public comment, and it's adopted into the Federal Register in April twenty twenty one,
which is actually means it's a law in the United States. And we
basically were super excited about this and we put our head down. We basically
spent over year, you know, putting together all the operations, the compliance
procedures, building the technology a specifically laid out in the four quarters of the
regulation, basically doing everything that was necessary to get approved. Right, the
goal was to become the first special purpose broken dealer. Now, during that
time, we did not focus on revenues. We did not focus on generating
you know, generating cash from virtual currency related activity because we just didn't think
that was the best way to do it. And other companies, I think
were basically focused on generating revenues. They had operational businesses, they're basically doing
those activities, and I don't know if as much energy or effort was focused
on those activities under the security claws. But in light of what happened with
FTX in twenty twenty two, what you see is basically it's like an oh
snap moment, like everyone needed realizes we need in order for this industry move
f O or there needs to be you know, oversight, There needs to
be proper frameworks. There needs to be a place that allows both institutions to
feel comfortable participating in the space from a compliance of bringing per perspective, but
also make sure retail investors don't get left holding the back for sure. Yeah,
and so when we initially started to tell people we were doing this,
they would laugh at us. They would literally scoff at us. So I
think by putting our head down and working hard, we put together an application
process that took us, you know, thirteen months. I think it's overall,
the approval process between custody clears a settlement took us something like thirty months
now. So I understand that while we have a different viewpoint than most other
people and the way that they've seated historically, the fact that we were first
to be approved is I think more representative of the efforts of the team and
not any sort of special treatment. I mean, I've never met or spoken
the guy against there. What were your thoughts on the Bitcoin SPOTYTF launch and
also the context of that that Grayscale had to win an appeal for this,
and you know, we were talking about bitcoin being not a security, but
yet the SEC did not want to prove these botytfs. But what are your
thoughts on the launch? So the spot ETF was a good step forward for
the industry because it provided a mechanism by which institutions could compliantly generate revenues in
the space, and what we've all want is more institutional participation. We basically
I think everyone, maybe not everyone, but the overall majority of the industry
thinks that institutional participation is great. And what we saw in light of the
events of twenty twenty two was a lot of the institutions sort of like who
were considering getting the space because they saw the big, big moneys being made.
They were like, we can't do this. They pulled back because aplient
to a regulatory perspective, by getting into a new industry, you can't jeopardize
your cash cass right, But by issuing the Bitcoin ETF, basically it's a
compliant mechanism by which they can participate in the space. But the issue is
is, well, it's a step forward. It's it's a twentieth century securities
wrapper around a twenty first century asset. You have a twenty century securities wrapper,
mean the ETF which is off chain, around the underlying which is bitcoin,
which is a twenty first century asset. Right, And we think the
next step is actually on chain ETFs, on chain structured products, and that'll
be much a major step forward because basically what that will allow is significant institutional
participation and also it'll allow for innovative assets to be created. By issuing let's
say a ETF which represents five tokens on chain, you could be a smart
contract. You can actually see what's in that smart contract, you could prove
the underlying like like it's the next step after that. And the reason that's
important is because that's really what prothum ecosystem empowers. In order for structured products
on chain structure products to be empowered, you need to have the ability for
there to be a trading venue, for there to be a custodial venue,
and for that asset to be clear and settled, which will actually then allow
for public trading of that asset, right and really empowering it, right,
And that's what Promethium is created. So in that essence, I think we
can be a major player in empowering the next generation of ets, meaning on
chain structured products on chains ETFs ETPs. That's fascinating and that's the first time
I've heard of that ETFs on chain, and so I have a couple of
questions for that. Are you currently working on that product and what's the timeline
for the launch of that, so you know, there's so many different things
you can do. Like in theory we're talking about, you know, staking
as a service before you're talking about about ETFs. Now we are the infrastructure
that can allow for once that product's created, for it to actually be used
in a distributed architecture, actually used as a twenty first century asset, actually
empowered that meaning allowed to be traded, publicly, cleared, settled in custody.
And without giving too much specifics, obviously, we're working with different people
out there to ensure that that next generation of ETFs could occur, and I
think that's where we'll see the real innovation. I know you probably can give
names, but is it a Wall Street firm? Can you give us that
much? It's you know, well, it's there's major asset issuers who are
thinking and who are thinking about it differently, Like I think the first step
was this, you know the backlog of these bitcoinytfs, right, and it's
it's a different type of consideration because you could say, well bit coins out
of security, no problem. So if you think about it now, like
you have the virtual currency, licensed custodians, state custodians who are custodying the
underlying but they can't custody the security, I mean the ETF itself because it's
a security. But once you in theory, if you're able to do it
on the Promethea ecosystem, you can custody both. So because if let's look
at it this way, Oh go ahead, no, no, no.
If you're treating ethereum as a security and there's a structured product ETF created on
top of that, which is also a security, you have to be able
to custy it at a digital asset securities like the license ecosystem. And the
reason that's sort of like it's nuanced, but it's important is because the way
that the licensing has worked on the security side is that they've bifurkated. I
mean they split traditional securities right, which is basically security is issued via transfer
agent. It's not the best explanation, but the simplest versus digital asset securities
and digital asset security under the legislator or the under the definition of the rule
is basically a security issued and transferred on chain, right, So you basically
have to have the licenses specifically for trading, clear and settlement and custody of
digital asset securities. You can't be a traditional clearer firm, you can't be
a traditional ATS to be able to do these things. So we have those
licenses, which I think that you know with METAATS and prebt capital, which
I think then really allows that empowerment to occur. The question for you,
and this is more in the macro level to your point, like we're using
a twenty eeth century wrapper for a twenty first century asset. But is it
a necessary I don't want to use the word evil, but a necessary thing
right now for the adoption of crypto because the wallets and the ease of use
for the next billion users is not there yet. It's not simple, it's
a bit intimidating, it's a bit scary, right that we need to go
out kind of boomerang out this way, But it's going to come back to
on chain to be more decentralized. I hope. I'm no, no,
it makes a lot of sense. So like the way that we sort of
deal with this, because it's obviously a problem, is that basically when you
come to our ecosystem, right if you want to create an account, you're
creating a brokerage account. Now your brokerage account represents the wallet holdings. Right
there is actually, but it's just basically creating a brokerage account, and the
overall majority of American public who's you know, investing, is familiar with brokerage
accounts. Yeah, so it's not like you have to boomerang around. Basically,
you from both a regulatory standpoint and probably from like an operational easy use
standpoint, you have to use these traditional mechanisms in order to make sure you
have very email KYC you know, everything that's done, and then basically have
all the information, suitability, et cetera for the customer. Right. But
basically by doing it that way, you eliminate that barrier. You don't say,
oh like like oh you know, there's so many technical requirements, let
me get my ledge or wallet like you know, like let me go figure
out these things that I have no idea what I'm doing. Right, No,
you don't have to do that. You come, you create a broken
account and then you go participate in the space like you went through traditional assets
here. Yeah, and I'm hoping that you know, maybe even in the
next five years to what you're saying, we boomerang back to on chain a
lot of these products will go back on chain and because I feel I'm kind
of struggling with it. But you know where I believe in cell custody.
You know, I'm an early adopter, and I believe in what crypto and
bitcoint all these things offer. But uh, it's becoming more financialized than by
Wall Street and tratify, where it's taking it away from the taking away some
of the benefits. So hopefully that could come out. It's very interesting because
it's like there's no free launch in life. So people want institutional participation,
they want broader adoption. But in order for that to occur, you have
to have certain you know, I don't don't got to say, not compromises,
but certain sort of understanding of how things are done in a more mainstream
sense. Yeah, for sure. And by you know, by integrating and
conflating both those, hopefully you get the benefits of both those worlds. Now,
the BT, the BT, the Big one ETSS are alive. There's
talks of an e theorem spot etf. Lowry Fink wants it. I've seen
him talk about it other Wall Street firms as well. Do you think we
see that approval this year it'll be interesting to see how it plays out.
Uh, it's not my area of expertise in terms of like predicting when ETFs
get approved, Like the creation of ETFs and you know, origination of products
is a bit different than the infrastructure needed for allow of those sort of products
that then thereafter be able to trade, clear, settle, and custody,
and it'll just we'll see what happens every time it. Overall, though,
I think what's important is you're seeing this trend twofold of larger institutional participation,
which is what a lot of people are waiting for. And also a focus
on tokenization and Prometheum's ecosystem through pro ethium ATS and Permetheum capital is really empowers
tokenization and will allow those institutions who are looking to participate in the space to
be able to do some things with the ass do something with the assets they
create, and having liquidity, have the public market trading, and having basically
the ability to allow investors both retail institution will participate in that with that asset
really empowers have that token confunction going forward. Let's talk stable coins. We
have the largest stable coin in the market is Tether in the United States,
you have circles USD PayPal launching a stable coin, and it seems like everybody
in their grandma is going to launch one, right and they can use it
for different ways. JP Morgan has jpm coin, but that's interbank settlements.
Yeah, and you know there's talks of stable coin regulations. The SEC has
command say the way stable coins are offered. I believe if you're getting interests
and so forth, is this security offering? What is your thoughts on the
stable coin market? And then how will promethium be supporting different stable coins.
Stable Coins are very, very very interesting and I'm definitely one of the innovative
areas within the space. I think the lessons have been learned related to algorithmic
stable coins, but also it's not just that the lessons have been learned.
The potential risk and systemic risk attendant to stable coins has been acknowledged, because
what we saw with lunataro is like, okay, like this is separated from
the US market, but the more it's integrated with larger institutions, it could
have a knock on effect. And there's a balance between allowing the innovation to
tend to stable coins to occur while making sure to really limit any sort of
systemic risk. And I think that'll be if anywhere there's legislation, you'll probably
see it there, and that'll be in order to sort of play those things
together. Are you guys playing to support stable coins in any way? I
mean even as just as a trading pair or whatever it may be. So
we use USD on the cash side, Okay, it's just in our opinion,
it's a method by which you don't have necessarily conversions when it comes to
fees, by going in and out of the cash side. And what we
saw, like you know, maybe it's like eighteen months ago now, is
when there's a when a stable coin loses its peg, it has potential major
risks because think about it. You have a customer on your platform. They
think they have ten thousand dollars in cash. Right, the stable coin goes
to eighty two cents on the dollar, and now you have eighty two hundred
dollars in cash, but you had ten thousand dollars in cash. Whose fault
is that? Is that the platform's fault. It's the holder of the stable
coins fault. And if you're on a platform, that just makes you use
stable coins. Now you're taking on the additional risk there. Like we talk
about we talk about wanting this next billion customers to get into the space.
If that occurs and you have and everyone's using stable coins and there's a depegging,
you'll lose those billion customers or they'll be harder to get the next billion
customers after that. Yeah. Agree, Yeah, I mean, look,
there'sti a lot of things that have to be figured out for sure, And
I agree with you there because that would be horrendous to have the average Joe
and Jay you come in to use stable coins and like you said, they're
losing money because of the PEG, and many of them wouldn't even understand what
the hell happen, right, So that way they would think they were scammed.
Yeah, it was a scam, and then they would lose faith in
the space. Yeah. Crypto bull market seems to be heating up for your
cycles playing out. You know, we've seen that bitcoin and cryptos being correlated
to global liquidity stock market. What is your outlook? I don't know if
you can get price predictions for a bigcoin, but you know, what is
your outlook over the next year and a half. It's it's really nice to
see the attention coming back to the space. I think, you know,
certain pundits had written off the space after you know, the twenty twenty two
cycle. But the reality is there's a lot of technology which could be integrated
into larger markets to basically from a distributed architecture standpoint, which should really allow
for continued growth in twenty twenty four. Now I'm specifically referring to tokenization,
and if you believe all the major pundits out there who say tokenization is you
know, the biggest thing that happens when it comes to markets, particularly securities,
you basically will see I think a lot of activity there, which should
you know, create more interest in the overall digital asset market. And again,
I think one of the things that people think about is, Okay,
well, you know, these these major institutions, whether it's Franklin Templeton with
the Benji or SoC Gen with their green bond, are issuing these assets.
They're into the space, they're understanding it, you know, they're participating in
the space. But in order for that really that leap of growth, that
sort of exponential growth to occur, you need to be able to do something
with those assets. Once they're created, and that's the thing the ecosystem permitives
created. We basically created an ecosystem that allows those assets, you know,
basically digital asset securities, which includes tokenization and both digital asset securities that are
investment contracts meeting what people call virtual currency. Besides for Bitcoin to be able
to be traded, cleared, settling, custody under the securities laws, which
will therefore allow real public markets to develop. So I think that we'll see
continued you know, positivity in the space, particular as institutions now have a
compliant mechanism by which they can participate in the space through ecosystems like Chromethium,
which will then also allow those assets that they create to be empowered thereafter by
actually being able to publicly trade them and clear, settle and custody them.
Final question here and now we'll hit the wrap up questions. What are your
thoughts on cbdc's Central bank digital currencies. There's certainly a lot of benefits as
we're heading more into the digital world with tokens and assets running on the blockchain,
but many are concerned with privacy and that these CBDCs could be used by
draconian ideals by certain governments and so forth. I'm not necessarily saying that in
the United States, but what is your thoughts on these things. There's a
constant struggle in the cbd C space between the potential innovation and benefits of moving
cash on chain and the potential or willy in consequences. Now, like,
the question is how do you sort of balance the A M L K y
C considerations with the zero knowledge proof considerations. I don't like, it's not
a question of doing anything bad. It's a question like should the government be
able to see every one of your transactions? And no, both counter parties
on that. It's a it's a big consideration, and you know, and
on the other side of that, you say, hey, but like you
can't be creating new ecosystems that are used for you know, funding the various
activities, and how do you prevent that on the on the on the entry
side. So it's a weird balance there, and I think it'll play out.
It's a little bit easier to do a cbd C in my opinion,
when you're you know, a country of five million people, or when you're
an authoritarian country and hopefully that you know in the United States, they'll be
able to find that balance there. Yeah, my hope is that the the
government here in the United States they lean towards more a stable coin and not
necessary a CBDC. Maybe it's adopting USDC, I don't know. But then
there's also systemic risk there because like what happens with the stable court side,
and then like is the government guaranteeing that stable coin with the full faith and
credit of the government. It's weird because like the cash is like the USD
is USD, but there's a layer of abstraction which becomes the stable coin,
and then there's an entity running that layer of abstraction. But when that thing,
when that asset goes awry, if it's on the government to like backstop,
I don't know, if that it sort of loses its potency in some
sense. Yeah, it's a lot of these things are TBD I know,
like Circle they have t bills as part of the reserves. So I don't
know at this point, it's a lot of speculation, but I think you
bring up some ballid points. Well, we'll have to wait and see.
But my hope is whatever they put together and with out there, it aligns
with the US Constitution at least and maintains some of our rights at least.
All right, I got some wrap up questions here for you. First,
if you could create your own metaverse, what would theme be. Shinichiro Watanabe,
he is the the guy, the anime director who directed Cowboy Bebop,
Samurai, Shamplu, Michigo, Hotskin, Space Dandy. It's like, it's
like he's made a lot of He's directing a lot of the like best anime
that are out there, and I think there's different styles and different motifs there.
Samurai Champlou has a edo period Samarai concept with a gangster rap motif,
so it's pretty interesting there. And Cowboy Bebop has both a space cowboy concept
with a like experimental jazz, So you have a lot of different concepts there,
all that seemed to flow together, So that's what I would choose.
And rapid fire questions. Favorite food, pizza, favorite musician or band Mac
Miller, favorite movie that's interesting, King of New York, favorite book,
how to win friends and influence people? I'm joking, no, no,
don Quixote. And when you're not working at Promethium, what are you doing
for fun. As a hobby, I like to do yoga Aaron, thank
you for taking the time. Thank you for going beyond our schedule time.
I appreciate all the answers, insights and so forth. Thank you for joining
me. Thank you for the opportunity. Tony tsk TSK