BY DELPHINE FORMA FOR ADELLO MAGAZINE
During the last 5 years, I have developed a truly real passion for crypto and blockchain. Innovation, creativity, openness, and decentralization are at the center of it. The space is fascinating by the endless possibilities that it allows, not only in the financial space but also in the way we interact with each other. A slow revolution and shift are happening and, when I started my journey in this world in 2018, I deeply wanted to be part of it and help shape its future. I have been trying to raise awareness and fight the general misconceptions about it, especially by trying to make it more tangible.
The industry is not only about crypto but it is about the technology which is changing our society by enabling direct interactions and disintermediation. We can see it with the rise of decentralized autonomous organizations (“DAOs”) and different crypto communities and cultures being built around specific projects.
DAOs have enabled people to connect with one another and work together to achieve different goals. One of the most well-known ones was set up to enable the purchase of an original copy of the US Constitution.
However, even if the technology has been in existence for quite a while now, there is still a lack of understanding by regulators, policymakers as well as the general public. Education, as well as a private-public partnership, is key to enabling flexible regulations that would not impair innovation. Regulations allow the industry to operate in a structured legal framework where the business knows how to operate under which conditions. As an industry, we need to keep working together to enable such collaboration and be open about it. Mass adoption would only be possible if we succeed in improving the way we communicate with the world.
I was quickly fascinated by the endless possibilities and use cases that the technology offers and by its potential to improve processes and significantly decrease manual work in the trade finance world. This is how I decided to switch my career and move to this new nascent industry, this was in January 2018 when I started working as the Global Head of Compliance for Lykke, a crypto exchange. I did not want to miss the train and be left out in the old traditional world. It was the ICO boom and events were happening almost every evening in the small city of Zug. This was very helpful to get to understand the industry and the technology, learning and extending my network. Indeed, in order to be a strong compliance officer and enable the business to prosper, it is key to understand technology, products, and business models.
I quickly started to be invited to speak at worldwide conferences about crypto compliance and all blockchain things, advise small startups, organise events on crypto crime, and become a board member of the crypto valley association. Everything was going very fast and there was so much to do. In 2018, as a compliance officer, you had to be very creative to navigate the regulatory landscape and make sure you were helping the business to thrive in a compliant environment. It was very challenging and the learning curve was steep. Regulatory and licensing strategy was already key as blockchain and crypto do not have borders, and it was a key factor of differentiation from the competition. Indeed, depending on your location, products, main customers, and target markets, applicable regulations will differ, and this can be used to optimise your business model.
At the end of 2019, we started the OpenVASP Association, where I am a member of the Board, to provide a solution for virtual asset service providers “(VASPs”) such as exchanges to comply with the “travel rule” which requires the exchange of information on the originator and beneficiary for funds (crypto included) transfers. Indeed, in 2019, travel rule compliance was added to the FATF recommendations for all VASPs.
The same year, the Swiss Regulator, FINMA, issued a circular to specify compliance requirements in Switzerland. The goal is the fight against financial crime, and especially sanctions circumvention. Blockchain allows the transparency of transfers which means that you can see from which addresses the funds are coming and to which address they are going but it does not allow you to identify who is behind an address. Using blockchain analytics tools, you can, however, determine if they have been associated with any illicit activity which is a very powerful tool for compliance officers as well as law enforcement agencies. The travel rule will allow the identification of the individual who controls a specific address. Worldwide implementation and adoption are still slow, and it comes with all of the challenges for VASPs who have to navigate different regulatory landscapes with different potential applicable rules set and requirements.
After almost 3 years working at an exchange, I moved to a crypto miner, which allowed me to have a full view and understanding of how it all starts, from the creation to the sale. However, working for an exchange is much more exciting as there is a lot more innovation going on, especially on the product side. Indeed, what makes your job as a compliance officer exciting is to find creative ways to enable the business to thrive and customers to have the best possible experience. This is why, at the beginning of 2022, I decided to join one of the oldest crypto derivatives exchanges, BitMEX, where I am currently responsible for setting up their Swiss local compliance. I am also responsible for some global initiatives such as travel rule strategy, licensing and registrations, risk assessment and listing processes, and tokens due diligence.
The combination of Non-Fungible Tokens (“NFTs”), blockchain-based games and the metaverse is helping mass adoption by making blockchain technology more concrete to the general public and by acting as a powerful educational tool. Their growth has definitely raised more attention in the industry and attracted a lot of new investors as well as traditional ones.
The boom of NFTs has significantly strengthened awareness and shown how blockchain technology could change the way we interact with each other. NFTs are a very concrete use case of blockchain technology and how it enables direct interactions and engagement. They can incorporate various attributes and be used to represent virtually anything digital or physical, including artwork, video game items, music, tickets, vouchers, trading cards, real estate, fashion clothes, designer objects, virtual lands, and video footage of iconic sporting moments.
Big brands have started to use technology to interact and engage with their customer base in new innovative ways allowing easy access to everyone. Sports clubs and the sports industry have also greatly contributed to awareness and education by using technology to change the way they engage with their fans and empower them in their decision-making process. This new fan engagement has also been seen recently in the movie industry where consumers would be able to invest directly and make decisions on the story and movie characters.
And now comes my second passion, fashion. Fashion will take over the metaverse: in the first two months of 2022 alone, we’ve seen numerous luxury and fashion brands — like Gucci and Adidas — dive into the metaverse. In the coming months, you can expect to see an explosion of fashion brands opening virtual shops, designing virtual clothes, and organizing virtual fashion shows. The pandemic has deeply accelerated this trend. Brands have been designing virtual outfits to wear in the metaverse. Soon, people will be able to enter virtual shops and try on clothes as if they were doing it in the real world. Using body scanning technology, you will scan your body which will be materialized in the metaverse. Brands would design real clothes virtually and you will be able to see how it fits you. You will then be able to buy it as an NFT, wear it in the metaverse and blockchain-based games, as well as exchange it for its real-life version.
Play and move to earn games will explode, and games linking the real world to the virtual ones such as completing actions in real life and getting rewards for it. Stepn is a good example of such games, education through fun.
The last two years have seen a growing interest and investment of traditional players such as hedge funds, asset managers, venture capitalists, pension funds, and banks, which seem to have finally understood that the industry is here to stay.
The growth of regulations has certainly enabled this trend. Indeed, traditional players are more inclined to transact with regulated businesses that have to respect similar rules. However, regulations should not impair innovation and regulators need to take into account the differences between tradefi and the new crypto industry.
The crypto regulatory landscape will continue to evolve. Indeed, as the crypto sector continues to mature, we will see more and more regulators issuing guidelines and frameworks to regulate the industry. For example, most VASPs will need to be registered and licensed in their country of operations and in the countries where they want to offer their services. Being regulated can be a huge competitive advantage, as it gives crypto firms the opportunity to attract institutional investors as well as retail customers looking to trade in a safe and protective environment — this is the path we are taking at BitMEX and what I am contributing to.
The use of decentralized exchanges, financial product innovation, and smart contracts technology will keep growing as user interfaces get more user-friendly. And for the industry to keep growing and become mainstream, education, easy-to-use applications, adaptable regulations, and private-public partnerships are the keys to success. Have your eyes wide open, as this is our future.