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Speaker 2: the link in the description. Welcome into the Thinking Crypto Podcast.
Speaker 2: I'm your host, Tony Edward, and joining me today is
Speaker 2: David Mercer, who's the CEO of l Max Group. David,
Speaker 2: great to have you on.
Speaker 3: Hey, Tony, good to be with you today, David.
Speaker 2: I'm excited to speak with you. I followed el Max
Speaker 2: over the years and your journey towards digital assets of course,
Speaker 2: and David, you have a plethor of experience in the markets,
Speaker 2: so I have a lot of questions for you and
Speaker 2: where you see things going. But before we get to
Speaker 2: all of that, tell us about yourself. Where did you
Speaker 2: grow up? How did you get into finance?
Speaker 1: Wow, that's a long story. So I was born and
Speaker 1: bred in Belfast, Northern Ireland. Believe it or not, I
Speaker 1: left Darmerald Doll what I twelve years of age and
Speaker 1: arrived in London. So I guess my formative years were
Speaker 1: in London. I've been in London ever since. And then
Speaker 1: the sort of journey into capital markets went via accounting
Speaker 1: firms such as EY. I spent a decade at in
Speaker 1: investment banking at Credit Sueee, moved through various brokerages and
Speaker 1: then arrived at Elma's Group in twenty eleven. Initially I
Speaker 1: was sort of hired gun at Elma's Group and then
Speaker 1: there's a famous advert and I did the advert, which
Speaker 1: is we bought the company in twenty thirteen, so twelve
Speaker 1: years ago. And yeah, we've just carried on from there.
Speaker 1: But I guess my whole working career has been in
Speaker 1: capital markets, particularly fixed income emerging markets, where I learned.
Speaker 1: I guess I learned everything everything that we do today,
Speaker 1: and I'm probably doing exactly what I should be doing
Speaker 1: after thirty years in the market. So that's how we're, however,
Speaker 1: arrived here today, Tony.
Speaker 2: And you know what you're experiencing capital markets? What was
Speaker 2: your first encounter with bitcoin and what was that moment
Speaker 2: like for you? What was your AHM moment when it
Speaker 2: clicked for you that this was different? Do you know what?
Speaker 1: Great question, but I'm not sure we've had an a
Speaker 1: hard moment for me. Perhaps we launched el MIC's Digital
Speaker 1: twenty eighteen. In we started thinking about it in twenty seventeen.
Speaker 1: In two thousand and thirteen, it was presented to us
Speaker 1: first at what we call a brown bag lunch, and
Speaker 1: we didn't do anything with it, and in fact, we
Speaker 1: launched another asset backed digital coin first in twenty and fourteen.
Speaker 1: We didn't get any traction. None of our institutional clients
Speaker 1: wanted to trade it, so we sort of dismissed it
Speaker 1: and I watched bitcoin from Afar. Then two thousand and seventeen,
Speaker 1: a whole bunch of our proprietary training firms, so you know,
Speaker 1: all the biggest banks in the world trade with us,
Speaker 1: all the largest prop training firms trade with us, and
Speaker 1: a few of them started saying, hey, we need some institutional,
Speaker 1: great infrastructure to transact this new digital asset. Can you
Speaker 1: do it, David? So we went and went and had
Speaker 1: a look, and we went from field to fork, or
Speaker 1: from origin of idea to live launch within six months.
Speaker 1: So I guess, no eureka. There was just the case
Speaker 1: of this is another market for us. You know, in
Speaker 1: Elma's group we list we run six exchanges. El Max
Speaker 1: Digital was the latest at the time, that was fifth
Speaker 1: at the time. The small eureka for us was that
Speaker 1: it was the fastest growing exchange I ever built. We
Speaker 1: got to break even within six months. I mean other
Speaker 1: exchanges typically take three years four years to get to
Speaker 1: break even as a company. I guess that took us
Speaker 1: four years, so digital took six months. So there's a
Speaker 1: little bit of a eureka moment there. I think it's
Speaker 1: a constant, constant small gains you see in the digital
Speaker 1: asset world or the crypto world at the moment. So
Speaker 1: perhaps for me, the most recent one was just two
Speaker 1: months ago in Singapore, you know, paying for a meal
Speaker 1: and a bunch of drinks with a meta based credit
Speaker 1: card right which only had ethereum on it. So paying
Speaker 1: paying a bill in a bill that came and singing
Speaker 1: dollars with ethereum via a crypto back credit card. That
Speaker 1: was sort of the thing that made me go, this
Speaker 1: is really real. And the you know, the the hospitality,
Speaker 1: the bar, the restaurant, they were unaware of what I
Speaker 1: had on this credit card. For them, it was just
Speaker 1: a master card. So that was probably the most recent
Speaker 1: one which has been close to eureka that made me
Speaker 1: think that digital assets, crypto assets can pervade everything we
Speaker 1: do through all our walks of life.
Speaker 2: And what are your thoughts on how this asset class
Speaker 2: has matured because it started with Bitcoin and then came
Speaker 2: other blockchains like Etheroreum and so on and so forth
Speaker 2: with a proof of steak and smart contracts. And now
Speaker 2: we're seeing the move towards tokenization, putting traditional assets like
Speaker 2: stocks and other commodities on the blockchain, which will allow
Speaker 2: twenty four to seven trading, fractionalization, more global markets, and
Speaker 2: things like that. What are your thoughts in the direction
Speaker 2: things are heading to?
Speaker 1: The direction is inevitable, so there is there will be
Speaker 1: a convergence of traditional assets and digital assets or crypto
Speaker 1: in the decades ahead. I think the evolution to date
Speaker 1: has been slow. As an industry. We've got to challenge ourselves, right,
Speaker 1: we need to do better. Within Almax group, I stradd
Speaker 1: all the two. So if you like, I've been trying
Speaker 1: to drive this convergence, I've been ready for this convergence
Speaker 1: for seven years, since twenty eighteen. I mean still to
Speaker 1: this day, ninety percent of my volume are in trad
Speaker 1: fi assets, so mostly we trade currencies or fiat currencies.
Speaker 1: So you know, last week with all the tariffs going on,
Speaker 1: or certainly through the month of April, you know, we
Speaker 1: would trade fifty billion dollars a day. Now, only ten
Speaker 1: percent of that, not even ten percent of those given
Speaker 1: days would be crypto assets. So but my strong, long
Speaker 1: held view is that by the end of this decade,
Speaker 1: ten percent of traditional assets will be tokenized. Now, what
Speaker 1: does that mean. It means you're talking about a market
Speaker 1: the size of twenty twenty five trillion dollars, so slightly
Speaker 1: bigger than the market cap of gold today. But then perspective,
Speaker 1: the total value of crypto today is just short three trillion.
Speaker 1: So I fully expect that to happen. And once that happens,
Speaker 1: there's absolutely no reason, nothing that can stop this going
Speaker 1: all the way so that eighty percent of the world's
Speaker 1: assets are tokenized by the end of the next decade.
Speaker 1: I mean, it's just inevitable because of the reduction and
Speaker 1: friction which exists today, and that's what's going to happen
Speaker 1: with the l like of tokenization, with fractionalization, with the
Speaker 1: fungibility of collateral, the ability to trade twenty four hours
Speaker 1: a day, seven days a week. It's just inevitable. You know,
Speaker 1: everything we've done, everything we do in markets at the moment,
Speaker 1: and traditional markets is quite clunky, Don't get me wrong.
Speaker 1: I've been in there for over thirty years, and they're
Speaker 1: way less clunky than there were when I started in
Speaker 1: the nineties. You know, all we've ever done over the
Speaker 1: last thirty years is increased market access. Blockchain tokenization are
Speaker 1: the next steps on that path to greater democratization of
Speaker 1: the market and more inclusive market access. And I think
Speaker 1: that tokenization and digital money, digital collateral will just accelerate
Speaker 1: what we do day to day and, if you like,
Speaker 1: amplify all of the excellence we have in capital markets today.
Speaker 2: So do you see along the lines what you mentioned,
Speaker 2: the opening up a more liquidity, the financialization of certain
Speaker 2: assets that couldn't be financialized before. And then we DeFi
Speaker 2: people being able to transact with each other globally like
Speaker 2: they never have before. So if I want someone's in
Speaker 2: Germany and they want to borrow some I don't know,
Speaker 2: the crypto assets or digital assets I can facilitate that
Speaker 2: they don't necessarily have to go to a bank.
Speaker 3: It's just going to be seamless.
Speaker 1: I mean, look, I don't know whether I'm not gonna
Speaker 1: sit here today and say that we are going to
Speaker 1: disintermediate the banks. Right the biggest provider of credit in
Speaker 1: the world today are banks right, Everyone who owns a
Speaker 1: house needs some leverage, So it is possible a bit
Speaker 1: like crowdfunding, it is possible you could have that crowd
Speaker 1: staking crowd leverage. It's quite expensive today when ultimately the
Speaker 1: you know, the best lenders, well, our governments, but after
Speaker 1: that our banks who will analyze credit rating. So I
Speaker 1: still think you need that leverage in the system. But
Speaker 1: certainly breaking down the friction in markets, being able to
Speaker 1: easily move from one asset to the other, or to
Speaker 1: earn an income, to earn interest on any asset that
Speaker 1: becomes enabled by blockchain and by tokenization, so you know,
Speaker 1: I think at the moment, the problem is we have
Speaker 1: to pre position our assets days in advance. I mean,
Speaker 1: to be clear, I mean, if you want to buy
Speaker 1: you know, move into a new asset class and buy
Speaker 1: a new etf you have to preposition your assets. It's
Speaker 1: going to take you onboarding plus positioning your collateral. It's
Speaker 1: going to take you five to seven days. The reality
Speaker 1: is when we have fungible collateral, when we have digital collateral,
Speaker 1: when we have.
Speaker 3: A market where.
Speaker 1: Institutions will accept digital dollars ethereum bitcoin, which can where
Speaker 1: ownership can be transferred, you know, at the sort of
Speaker 1: not instantaneously as everyone says, but within a matter of
Speaker 1: seconds and within a matter of minutes. Then suddenly you're
Speaker 1: going to see much more fluidity in the markets. And
Speaker 1: that's all we've all been looking for. And what happens
Speaker 1: with that, by the way, is that all markets will benefit.
Speaker 1: So you know, I'm in a foreign exchange market that
Speaker 1: trades seven trillion dollars a day that's doubled in the
Speaker 1: last decade. Guess what it's going to double again in
Speaker 1: the next decade. It just might be that a lot
Speaker 1: of the underlying will be digitized, so it'll be digital Euro's,
Speaker 1: digital dollars, digital yen and the like. So absolutely, what
Speaker 1: we're doing together is breaking down the friction that exists
Speaker 1: in markets. But I just want to say one thing
Speaker 1: to you know, all the crypto evangelists out there, we
Speaker 1: need to do a better job. It's still really small, right,
Speaker 1: Gold by market cap has outstripped crypto over the last
Speaker 1: five years in terms of the market capitalization, right, so
Speaker 1: gold that gold today is over twenty trillion dollars, Crypto
Speaker 1: is still three. So you know, we need to do
Speaker 1: a better job are showing the use cases for crypto,
Speaker 1: for digital assets and for tokenization. But another butt But
Speaker 1: what I want to say at the end of this
Speaker 1: is that we are huge believers at our MAX group
Speaker 1: that tokenization is inevitable and is the future of capital
Speaker 1: markets and you will see a fusion of the two
Speaker 1: by the end of this decade.
Speaker 2: And David, do you believe that part of the uh
Speaker 2: you utility and like you mentioned, the use cases that
Speaker 2: have to be put out there, we have to do
Speaker 2: a better job. Was the lack of clarity from the
Speaker 2: governments around regulations because certain institutions may not have wanted
Speaker 2: to touch this because they're risk averse. We don't know
Speaker 2: if this is going to get clarity. We don't know
Speaker 2: if this is going to get banned. But now that
Speaker 2: things are opening up here in the United States where'rem
Speaker 2: at Congress's work in legislation, we have a more favorable environment.
Speaker 2: In the EU you have the MICA regulations and the
Speaker 2: UK believe they've passed some regulations. Things are starting to
Speaker 2: get clearer now. Once we have those things set in stone,
Speaker 2: it may kick off adoption like we've never seen before.
Speaker 1: It needs to simple as that Tony. It absolutely needs to.
Speaker 1: It was somewhat of an excuse, but the lack of
Speaker 1: a framework never helps the growth of an asset class.
Speaker 3: Right.
Speaker 1: By the way, fighting the existing regulator is never a
Speaker 1: good There's never a good place to start either. But
Speaker 1: I think certainly the US was anti crypto. But let's
Speaker 1: look at the if you look at the history of bitcoin,
Speaker 1: you know, going back to Silk Road, you look at
Speaker 1: some of the bad actors and some of the you know,
Speaker 1: the convicted felons we have we've had within crypto that
Speaker 1: hasn't helped, right, you know, you're trying to convince you know,
Speaker 1: you're trying to convince this The way I look at
Speaker 1: it is, I'm trying to convince two hundred and twenty
Speaker 1: trillion dollars of trade fire assets to move to this
Speaker 1: new world of digitization, of tokenization and digital assets.
Speaker 3: Right.
Speaker 1: Having a couple of get rich quick bad actors, you know,
Speaker 1: being the spokespeople for this new asset class wasn't a
Speaker 1: great thing. I think the new administration in the United
Speaker 1: States should help. But then more importantly, after that, the
Speaker 1: industry needs to create infrastructure and product that the if
Speaker 1: you like, the centers of capital want to invest in, right,
Speaker 1: So we're going to talk, no doubt're gonna ask me
Speaker 1: about ETFs and things like that. But you must remember something, right,
Speaker 1: The fastest growing ETF of all time is the bigcoing ETF.
Speaker 1: It's about forty billion dollars. That's tiny, right, It's really
Speaker 1: big in ETF land. But I look at the two
Speaker 1: hundred and twenty trillion dollars traded FY assets. Again, I
Speaker 1: look at the three trillion dollars of crypto, and I'm saying, well, okay, well,
Speaker 1: how important is forty one? So we've got to keep
Speaker 1: creating products that are accessible, that people want to trade.
Speaker 1: And if you like, back to one of your earlier questions,
Speaker 1: we have to create those use cases. Let's get the
Speaker 1: frameworks established. They're not established in the United States, just
Speaker 1: they will come. I'm sure of that. We have a
Speaker 1: better structure or a better think tank in twenty twenty
Speaker 1: five than we had in twenty twenty two, twenty three,
Speaker 1: twenty four.
Speaker 3: Good.
Speaker 1: I think the same is true in the EU. I
Speaker 1: think there are some forward thinking regulators in Asia, like
Speaker 1: the MS, likewise in the Middle East. So I think
Speaker 1: those global frameworks being established will help the asset class
Speaker 1: to grow, and then as an industry, we have to
Speaker 1: demonstrate that we can act within those guidelines, right and
Speaker 1: let the industry thrive, because you know, one of the
Speaker 1: big things, there's three things regulators have to do. One
Speaker 1: protect consumers. To be clear, within crypto, we did not
Speaker 1: protect consumers, right, look at those bad actors, look at
Speaker 1: the things that happen in twenty two and three. We
Speaker 1: did not protect consumers. So we need that regulation. The
Speaker 1: second bit is they have to create a wholesale framework.
Speaker 1: And the third thing is they have to harness innovation. Okay,
Speaker 1: So I think what we did a little bit in
Speaker 1: crypto is innovate, innovate, innovate without protecting or creating the framework.
Speaker 1: I think now we have a structure that will allow
Speaker 1: it to happen, and then we must innovate. We must innovate,
Speaker 1: and we must demonstrate the convergence of tradi fi, DeFi,
Speaker 1: crypto digital assets and show the benefits of the digitization
Speaker 1: of markets going forward. So I think, to answer your question,
Speaker 1: in short, we have a better opportunity now than we've
Speaker 1: ever had.
Speaker 2: And David, what do you think about this? I kind
Speaker 2: of see the crypto startups as almost being their kids.
Speaker 2: To your point, they weren't. They didn't have their i's
Speaker 2: dotted and their t's crossed for everything, FTX com mingling
Speaker 2: their funds and you know all that nonsense, right, But
Speaker 2: the Wall Street firm, the banks that you work with
Speaker 2: and things like that are here. They have the knowledge,
Speaker 2: they have the infrastructure, they have the pedigree to come
Speaker 2: set up the et apps and do the proper custody
Speaker 2: and all these things. They're going to be the ones
Speaker 2: to kind of lead the charge in creating these financial
Speaker 2: products and things like that.
Speaker 1: You can be careful soon, we have to be careful,
Speaker 1: but not disenfranchising either group. And I think both groups
Speaker 1: need to put the egos in a draw to a
Speaker 1: certain extent and take the best bits from both sides
Speaker 1: of it. I think an al Max group I were
Speaker 1: fortunate because we're working trad FI. We operate with all
Speaker 1: the world's biggest banks, prop trading firms, all the biggest
Speaker 1: asset manager in the world, and hundreds of brokers.
Speaker 3: And then we work with a lot of crypto native firms.
Speaker 1: So I think it's not a case of hear I
Speaker 1: do hear some institutions talking about pushing as you just
Speaker 1: said that using that fraight, pushing the kids out.
Speaker 3: I don't think that's true. Right. Derivatives were built, you know.
Speaker 1: Back in the nineties when I started, Derivatives were built
Speaker 1: by the latest rock stars, the latest engineers, the latest scientists.
Speaker 1: I think that's true in crypto today. So you know,
Speaker 1: I look at people who are running the digital side
Speaker 1: of our business or some of the more forward thinking
Speaker 1: parts of our digital business here, and they're in their twenties.
Speaker 1: That's the demographic their computer engineers. And I think we
Speaker 1: have to let them have their way. They have to,
Speaker 1: We have to let them show us the way.
Speaker 3: In many ways.
Speaker 1: But there are things we can learn from tradifi that work.
Speaker 1: So let's use that plumbing for example. You said it,
Speaker 1: said it first there, Tony. Let's have separation of function,
Speaker 1: Let's have segregation of funds.
Speaker 3: Right. I'm a little bit dismayed within.
Speaker 1: The crypto industry even right now, when I see brokers
Speaker 1: pretending to be exchanges, when I see exchanges wanting to
Speaker 1: be custodians, and I don't know why they want that
Speaker 1: to be the case. Right, you have to have that
Speaker 1: separation of function and that segregation of funds it's for
Speaker 1: a reason. It protects consumers, it protects the market, and
Speaker 1: it also allows specialization in every part of the market.
Speaker 1: So let's take the best bits from.
Speaker 3: From both of the markets.
Speaker 1: Let's have that true fusion, and I think together we
Speaker 1: end up with a much better, more accessible capital market
Speaker 1: structure than we have today.
Speaker 2: Yeah, well, put it tell us a bit about Elmac
Speaker 2: Digital's services that you provide to the banks and institutions
Speaker 2: that you work with.
Speaker 1: So look, I'm going to take you back a step
Speaker 1: and say Elmac's group operates exchanges. We match buyers and sellers,
Speaker 1: simple as that, up to fifty billion dollars a day, right,
Speaker 1: and we cover the whole spectrum of customers from banks
Speaker 1: all the way to asset managers all the way to
Speaker 1: too brokers. So what happened in twent twenty eighteen was
Speaker 1: that a big part of that. Let me say, forty
Speaker 1: percent of my client base were training digital assets already,
Speaker 1: and they were their proprietary training firms. Some of the
Speaker 1: biggest names or you know futures futures trainers you'd see
Speaker 1: in Chicago and around the world. They were training crypto
Speaker 1: assets and they wanted to do it with institutional grade infrastructure.
Speaker 3: They did it with us.
Speaker 1: So the core thing we do is provide liquidity and
Speaker 1: match buyers and sellers. Now, what was different with crypto
Speaker 1: as opposed to FIAT, so I say ninety percent of
Speaker 1: our volume every day would be in FIAT, was I
Speaker 1: didn't have prime brokers. So all I do in foreign
Speaker 1: exchange is are match buyers and sellers, and then I
Speaker 1: send the trades down to a prime broker or to
Speaker 1: a bank who aggregates those trades settle them. Guess what
Speaker 1: I couldn't do that in crypto, So we had to
Speaker 1: integrate directly with the blockchain. So guess what we had
Speaker 1: to settle? We had to pay twenty four hours a day,
Speaker 1: seven days a week. From twenty eighteen, we've been doing them.
Speaker 1: The next bit in my core business and my Tradifi business,
Speaker 1: the customers deposit funds with us, but they don't deposit
Speaker 1: them with Elmac's group. They deposit them into a bank
Speaker 1: account with Elmac's Group. And I've got one hundred and
Speaker 1: over one hundred seventeen Nostro accounts across seventeen different currencies
Speaker 1: in trad five. But they're all you know, G ten banks,
Speaker 1: G ten bank accounts. Guess what, that doesn't exist either
Speaker 1: in crypto. So people wanted to posit bitcoin with me
Speaker 1: or with ethereum with me, then I have to I
Speaker 1: have to store that summer. So we built our own custodians, so,
Speaker 1: if you like, since twenty eighteen, I have been storing, settling, matching,
Speaker 1: and providing liquidity to institutional clients, so for the last
Speaker 1: seven years.
Speaker 3: But doesn't mean, by the.
Speaker 1: Way that we always expect to be every part of
Speaker 1: that chain.
Speaker 3: I now have a.
Speaker 1: Digital custody hub, so we integrate with some of the
Speaker 1: best custodians in digital assets. If my customers want to
Speaker 1: use those custodians, we're very happy for them to do that,
Speaker 1: as long as I can transact and settle with those custodians,
Speaker 1: so we do that. I'm very, very hopeful that the
Speaker 1: logjam and institutional markets that is credit will be solved
Speaker 1: by some really big names moving into the prime broker space,
Speaker 1: because again I just want to our core business is
Speaker 1: to match buyers and sellers, so I'd be very happy
Speaker 1: that a customer on boards with two customers on board
Speaker 1: with me, I match the trade and they both with
Speaker 1: the same prime broker. Or with different prime brokers, and
Speaker 1: that settlement happens between those two prime brokers. So I
Speaker 1: hope down the line that we can get to that
Speaker 1: true separation of function again and segregation of funds, and
Speaker 1: we can go back to doing what we're best at,
Speaker 1: which is building world leading proprietary technology. In all my
Speaker 1: exchanges are one hundred percent proprietary, right, so we've been
Speaker 1: doing that since two an intent, so I want to
Speaker 1: focus on that and then creating the best liquidity pools
Speaker 1: in the world. I think there was a there was
Speaker 1: a survey out recently that said, you know, Elmes Digital
Speaker 1: has a multiple of the liquidity you see on all
Speaker 1: other digital.
Speaker 3: Exchanges around the world. So that's what we do well.
Speaker 1: We match buyers and sell as well, and we create
Speaker 1: deep institutional liquidity pools.
Speaker 3: Mm hm.
Speaker 2: You know you mentioned sevening up Nostra accounts, and I've
Speaker 2: studied Nostral and Vastra accounts around the globe. It seems
Speaker 2: so there's a lot of capital just locked up there.
Speaker 2: Do you think stable coins or some form of tokenized fiat,
Speaker 2: you know, it will eliminate the need for that because
Speaker 2: you have instant settlement and you know instantaneous transactions.
Speaker 1: I'm a total I'm a total believer in that. But
Speaker 1: what I would say is, you know, please don't be
Speaker 1: telling me that stable coins today are are more efficient
Speaker 1: than fear. That's one way to destroy value, right, people
Speaker 1: talk about crypto and digital assets being a store of value. Okay,
Speaker 1: pay me interest. Right, there's over two hundred and thirty
Speaker 1: billion dollars of stable coins. Then you know who who
Speaker 1: the big names are, pay me interest. I'll happily hold them.
Speaker 1: I'll happily hold them. But right now, you just destroy value, right,
Speaker 1: So okay, we're probably back to regulation. So okay, let's
Speaker 1: get them regulated and pay interest. But absolutely, over time,
Speaker 1: you will be earning interest on a second by second,
Speaker 1: minute by minute basis on tokenized assets. Now those tokenized
Speaker 1: assets might be you know, currencies, money market funds. So
Speaker 1: the moment what has to happen, unfortunately with the stable
Speaker 1: coins is I have to put it into a a
Speaker 1: money market fund and those are quite small. Right Again,
Speaker 1: billion dollars is sort of the biggest tokenized money market
Speaker 1: fun today. I've got to put it in there to
Speaker 1: somehow earn interest. But over time, if I can earn
Speaker 1: money in my UK guilts, my US treasuries I.
Speaker 3: Expected or in my bank account.
Speaker 1: I expect the same to happen with digital assets so
Speaker 1: or tokenized assets and unstable coins. So absolutely up. I
Speaker 1: think that's the whole point, going back to an earlier
Speaker 1: question and Tony about accelerating the money flow that we
Speaker 1: see in capital markets today and leading to an explosion
Speaker 1: actually of all trading volumes in capital markets is because
Speaker 1: of the power of that fungible collateral. So being able
Speaker 1: to move your bitcoin, your dollars, your etheroreum into into
Speaker 1: other assets at you know, the click of the fingers.
Speaker 1: So I mean you can trade the es pee Monday
Speaker 1: to Friday and then you can you can flick that
Speaker 1: into bitcoin theorem over the weekend, or you can state
Speaker 1: that and DeFi over the weekend and then you can
Speaker 1: move it back into euro dollar, or you can move
Speaker 1: that back into UK guilt or US traders on Mondays.
Speaker 1: So you know, twenty four to seven market access and
Speaker 1: acceleration of capital markets is what we should be looking for.
Speaker 1: And you know, people really will be getting more bang
Speaker 1: for their buck and being able to sweat their assets
Speaker 1: more efficiently than they can today.
Speaker 2: Now you mentioned you work with a lot of the
Speaker 2: banks globally, and we're seeing some of the biggest names
Speaker 2: coming out and talking about crypto now they want to
Speaker 2: launch services just here in the United States. Bank of
Speaker 2: American CEOs that they want to launch their own stable coin.
Speaker 2: Standard Charter has been partnering with a lot of folks.
Speaker 2: And you know, what type of demand are you seeing,
Speaker 2: you know, within maybe they'll pass year or two from
Speaker 2: these banks. And has that been growing? Are they coming
Speaker 2: knocking at your door saying we want to participate, you know,
Speaker 2: have you seen that increase?
Speaker 1: Yes, sir, look, I think the increase is notable since
Speaker 1: the November election, that's clear. So the biggest a lot
Speaker 1: of the biggest banks in the world are in the
Speaker 1: United States of America. Right they were slightly hamstrung by
Speaker 1: regulations such as SEB one twenty one, such as all
Speaker 1: the enforcements will go that were enforcement actions in place
Speaker 1: by the SEC. So I think that's all been freed up,
Speaker 1: certainly since the inauguration in January twenty twenty five. All
Speaker 1: of a sudden, the banks are enabled. Now, don't get
Speaker 1: me wrong, they haven't yet been enabled by the FED,
Speaker 1: but they're starting to think about the services and you know,
Speaker 1: quote unquote, you know I trade with the top forty
Speaker 1: banks in the world, trade with Delmas Group, so quote
Speaker 1: unquote from one of them that the event I was
Speaker 1: that just two weeks ago. Listen, when we trade, we're
Speaker 1: going to trade with you. Why because it's the same
Speaker 1: tech stack, right that they trade trade fight with. Right,
Speaker 1: It's exactly the same technology, exactly the same API. We've
Speaker 1: been trading with them for fifteen years. It's just a
Speaker 1: different IP address, right. So that trusted institutional partner is
Speaker 1: where we come in. But it's a trust, it's the technology,
Speaker 1: it's the regulation, it's that credibility. So suddenly some of
Speaker 1: the conversations are educate us. Some of them are more specific,
Speaker 1: how do we partner with you on custodian what's the
Speaker 1: best practice for customing assets for our customers? Some of
Speaker 1: them are what's the best way to start up an
Speaker 1: agency business so we can offer spot crypto trading for
Speaker 1: our customers. Some of them are are, you know, how
Speaker 1: do we interact? How do we accept digital collateral deposits?
Speaker 1: Some of them are how do we offer wealth management products?
Speaker 1: So I think there's a whole range, but what I
Speaker 1: would say was that in twenty and twenty three and
Speaker 1: the first half of twenty four the conversations had.
Speaker 3: Almost slowed to a hold.
Speaker 1: Right twenty twenty one, the last sort of bull run
Speaker 1: every bank was readying themselves. I think that died away
Speaker 1: in twenty two, twenty three, in the first half of
Speaker 1: twenty four. They have now been re enabled. It won't
Speaker 1: be quick, I'll say that to you now, Tony. It
Speaker 1: won't be quick. But I imagine that a handful of
Speaker 1: banks will be offering spot crypto services to their customers
Speaker 1: by the end of this year, and by the end
Speaker 1: of twenty twenty six, I would expect double digit banks
Speaker 1: to be offering crypto trading for their customers and crypto
Speaker 1: custodian services or certainly digital assets services. So I think
Speaker 1: it's going to happen quickly. There's a few dominoes that
Speaker 1: need to fall into line.
Speaker 3: You know.
Speaker 1: We still need that the official regulation, the first bit
Speaker 1: is going to be stable, point of course, So we
Speaker 1: need that to fall into place. We need the FED
Speaker 1: to approve the holding of it for those particular banks,
Speaker 1: and then we need the banks themselves to partner or
Speaker 1: create custodial services and prime breaking services. But look again,
Speaker 1: I use that word a lot. Inevitable. It's inevitable that
Speaker 1: the largest banks in the world, some you've mentioned in
Speaker 1: your question, will be offering cryptos services this year.
Speaker 3: Wow.
Speaker 2: And then with elmax, can the banks plug into elmax
Speaker 2: is infrastructure so to speak, where they it's a kind
Speaker 2: of white label. Maybe they're offering the service on their
Speaker 2: front end, but you're actually powering the trading.
Speaker 1: All of that's possible, and we're having those conversations today
Speaker 1: because look, we've been offering it, you know, full service.
Speaker 3: It's twenty eighteen.
Speaker 1: You know, I said to you earlier, I don't believe
Speaker 1: one entity should be offering all those services.
Speaker 3: Don't get me wrong.
Speaker 1: Banks can because you have the state and church idea
Speaker 1: within banks and within a group such as I'm actually
Speaker 1: just have different regulations. So for example the United Kingdom,
Speaker 1: I have one regulation from the exchange business and I
Speaker 1: have another regulation for the broker business, as it should be.
Speaker 1: So yeah, we're looking to partner with the banks for
Speaker 1: some services. My focus is on exchange matching technology. Some
Speaker 1: of them come with excellent balance sheets, huge balance sheets,
Speaker 1: which means they can deliver a much bigger and better
Speaker 1: custodian service and much bigger and better clearing or p
Speaker 1: and breaking service. So absolutely we're looking to partner with
Speaker 1: some of the biggest names to accelerate this growth in
Speaker 1: tokenized and digital assets.
Speaker 2: Talk to us a bit about institutional defive. You know,
Speaker 2: I'm familiar from a retail perspective doing small DeFi transactions,
Speaker 2: and you know DeFi one point zero had a lot
Speaker 2: of exploits, a lot of hacks and things like that.
Speaker 2: How are the institutions approaching this and how are they
Speaker 2: looking to mitigate things like that happening to them as
Speaker 2: they transact.
Speaker 1: I mean that's interesting. I mean, you know, wat's this space.
Speaker 1: So you know, we've built hybrid hybrid decentralized exchange here
Speaker 1: at elmac's group. Smart contracts are actually quite simple, right,
Speaker 1: and they're if they are If they are simple, I
Speaker 1: can read them. Put it that way. That's they must
Speaker 1: be simple if I can read them. So a lot
Speaker 1: of the security risks go away just with the simplicity
Speaker 1: of those smart contracts. Now, I think how the institutions
Speaker 1: are looking at as a more efficient way of settlement, right,
Speaker 1: and in many ways, selmon risk disappears, Like in talk
Speaker 1: to everyone in crypto today. Unfortunately, they've reintroduced settlement risk, right,
Speaker 1: because it's like DVP, someone goes first and someone goes second. Right,
Speaker 1: So you introduce this thing called hoshtat risk which disappeared,
Speaker 1: which was named in nineteen seventy eight, and when bankers
Speaker 1: that went went went bust, and then it was it
Speaker 1: was solved in the FX market through the creation of
Speaker 1: cls some twenty four years later. So that risk exists, right,
Speaker 1: So that settlement risk exists in crypto today smart contracts
Speaker 1: and defied the away with that. So a lot of
Speaker 1: them are are look looking at that as a as
Speaker 1: a mechanism again to put it, simply to speed things up, right,
Speaker 1: to accelerate the movement of funds. I don't think you
Speaker 1: know a lot of one point zero As you say,
Speaker 1: DeFi was very much everyone trading.
Speaker 3: With everyone and not knowing each other.
Speaker 1: I think that's very unlikely from an institutional perspective and
Speaker 1: actually doesn't pass fat F guidelines.
Speaker 3: It's just as simple as that.
Speaker 1: You're not going to get past AML muster with one
Speaker 1: point zero DeFi.
Speaker 3: But the best bits of.
Speaker 1: DeFi trading anything anytime, anywhere, right and eradicating settlement risk
Speaker 1: and credit risk is immensely powerful. I think that's how
Speaker 1: it's going to be harnessed. I believe you're seeing that
Speaker 1: internally in some banks already, right you mentioned one bank
Speaker 1: mentioned in their own their own stable coin. You know
Speaker 1: that already exists within within JP Morgan for example. But
Speaker 1: you're going to see that amongst institutions where we start
Speaker 1: just settling and moving funds on using smart contracts. So
Speaker 1: I think that's going to be a big transition in
Speaker 1: the markets. But you know you're not going to be
Speaker 1: able to get away from KYC. I'm very hopeful again
Speaker 1: that we can develop zero knowledge proofs and move to
Speaker 1: more digital KYC onboarding than we have today. But for now,
Speaker 1: that's what's slowing us down, and that's what's slowing down
Speaker 1: institutional DeFi adoption.
Speaker 2: That's such a great point. I didn't think about the
Speaker 2: banks are not going to operate outside of KYC mL
Speaker 2: and knowing who they're transacting with. So do you see that,
Speaker 2: you know amongst the banks globally they can do defire
Speaker 2: transactions more again with standard charter wherever they're at right,
Speaker 2: ubs and this banker in another country and things like that.
Speaker 1: Oh yes, The question is whether they need it. Remember,
Speaker 1: they have a huge credit lines with each other, right,
Speaker 1: so it makes it more efficient. Remember the benefit of
Speaker 1: the spot contract, the benefit of that settlement is for
Speaker 1: instantaneous settlement transfer of ownership. I'm not sure that group
Speaker 1: banks need that so much today because they just need
Speaker 1: Ledger entries, right. They have enough credit with each other
Speaker 1: Ledger entries. The ability they have though, to actually have
Speaker 1: digital dollar in their own Ledger T zero rather than
Speaker 1: T plus two is advantageous. I get it frees up
Speaker 1: the credit behind that. So I'm not sure. I'm not
Speaker 1: sure they need it per se, but certainly it should.
Speaker 3: It should add to the velocity of money I think.
Speaker 1: For so I probably the top if you look at
Speaker 1: that matrix top twenty banks in the world, there's a
Speaker 1: four hundred you know, there's a four hundred square matrix
Speaker 1: where they all have credit with each other. Just outside
Speaker 1: of that, I think is where the smart contracts become useful.
Speaker 1: So it's clients of the banks depositing funds, depositing digital
Speaker 1: funds and transacting immediately with those banks and having that
Speaker 1: instantaneous transfer of ownership is hugely beneficial and will add.
Speaker 3: To the velocity of money.
Speaker 1: So I think it's there. I think it's in the
Speaker 1: asset manager segment particularly. I think you move into the
Speaker 1: broker segment, that becomes hugely powerful. And again back to
Speaker 1: what I said, it's just speeding things up, making you know,
Speaker 1: faster payments, faster money, right, making everything more fungible, making
Speaker 1: everything sort of removing the friction right from those markets.
Speaker 1: So that's what's going to happen. I think that's the
Speaker 1: advantage of smart contracts, and I think you're gonna see
Speaker 1: a lot of settlement happening and using that mechanism in
Speaker 1: the years ahead. But we're not quite there yet, and
Speaker 1: we've just got to keep increasing the ecosystem. So if
Speaker 1: you imagine, you know that you're at the center of
Speaker 1: the onion, you've got to go all the way out
Speaker 1: to the outer layers of the onion, so everyone it
Speaker 1: transacts in that ecosystem can utilize the power of those
Speaker 1: smart contracts. And if you think about it, it just
Speaker 1: freezes up credit. And then when she free up that credit,
Speaker 1: once she transfer ownership instantaneously, then you provide greater facility
Speaker 1: to trade. Again, So back to what I said at
Speaker 1: the start. I mean, you're going to see trading volumes
Speaker 1: and the sort of the amount of money that's transacted
Speaker 1: every single day being multiplied in the in the decades ahead.
Speaker 3: Mm hmm.
Speaker 2: It's exciting, a brave new world. I got to I
Speaker 2: know we're coming up in time, but I wanted to
Speaker 2: ask you about all coin ETFs because bigcoints, as you
Speaker 2: mentioned before, the most successful ETF in the history of ETFs,
Speaker 2: etherey metfs did Okay, I think the staking component being
Speaker 2: missed or missing from the ETF here in the United
Speaker 2: States at least, didn't give it as much inflows. But
Speaker 2: there's demand for Salona, XRP and other assets. Are you
Speaker 2: seeing that demand from your institutional clients? They want access
Speaker 2: to other things beyond bitcoin.
Speaker 1: Honest Donson though, Okay, so that's today in the future,
Speaker 1: ETF of everything, ETF of everything, every asset that is
Speaker 1: significant and the investment community needs to needs to is
Speaker 1: to have an But remember bigcoin and ethereum today are
Speaker 1: what seventy seventy five percent of a total crypto market?
Speaker 1: So do you need it? Do you need everything else?
Speaker 3: Yet?
Speaker 1: I'm not sure they're significant enough. And look before everyone
Speaker 1: you know shouts at me and hits me over the
Speaker 1: head and says, David points amazing, and so that was
Speaker 1: amazing at whatever you say. Look, seventy five percent is
Speaker 1: two point two trillion dollars, right, so you've pretty much
Speaker 1: covered crypto, right, Crypto is just short three trillion. Remember
Speaker 1: the ETF world, the tradi fi world is two hundred
Speaker 1: and twenty trillion, so it's quite small over time. I
Speaker 1: think what's more important is the step before that. We
Speaker 1: have got to make some more digital assets, some more
Speaker 1: crypto assets, more useful, have more utility, and prove their worth.
Speaker 1: I think when you look at it by pure value,
Speaker 1: I'm just doing it based on data, ladies and gentlemen, Right,
Speaker 1: don't hit me over the head, just on pure data.
Speaker 1: It's today it's bitcoin, and today it's ethereum, but tomorrow
Speaker 1: it could be you know, a whole raft of coins.
Speaker 1: And if you go back to where I started, I
Speaker 1: expect digital assets to be thirty trillion dollars by the
Speaker 1: end of this decade, right, I expect them to be
Speaker 1: over one hundred and fifty trillion dollars by the end
Speaker 1: of the next decade, which means you're gonna have a
Speaker 1: lot of digital asset ETFs.
Speaker 3: So yeah, it's it's that bit is inevitable.
Speaker 1: Short term, You're gonna have some that don't work out right,
Speaker 1: just the same way you're gonna have some. These are
Speaker 1: all scientific experiments, so some of the underlying coins aren't
Speaker 1: gonna work out, some of the ETFs aren't going to
Speaker 1: work out. But you know, as sure as eggs as eggs,
Speaker 1: you're gonna have etf on on digital assets going forward.
Speaker 2: Great point, all right, I got some wrap up questions
Speaker 2: here for you, David. First, if you could creat your
Speaker 2: own metaverse, what would the theme be?
Speaker 3: That's interesting?
Speaker 1: I'm not even I'm not even sure I play that much.
Speaker 1: I'd probably be Look, I'm a sort of global guy.
Speaker 1: I like wherever I go. I like running and things
Speaker 1: like that. So it's gonna have to be a running
Speaker 1: or cycling or a golfing metaverse where I can just
Speaker 1: be anywhere in the world and do what I like doing,
Speaker 1: and at the same time be able to transact in
Speaker 1: transact in those markets whilst I run a cycle or
Speaker 1: play golf there.
Speaker 2: Okay, rapid fire questions, favorite food, Japanese, favorite musician or
Speaker 2: band David Bowie favorite movie, Rockie two or three favorite book,
Speaker 2: The Long Walk to Freedom Nelson Mandela. When you're not
Speaker 2: working at al Max, what are you doing for a.
Speaker 3: Fun Playing golf, going for a run, David?
Speaker 2: Absolute pleasure. I appreciate your knowledge and insights, and I
Speaker 2: would love to have you back on Thank you so
Speaker 2: much for joining me.
Speaker 1: Thanks Tony, I've enjoyed it today