The Potential of a Decentralised Financial Ecosystem in Asia Pacific

As digital assets continue to intrigue stakeholders and consumers alike, questions surrounding its entire ecosystem – infrastructure, governance, security and use, continue to be vague. Primarily speaking of the ecosystem for digital assets, several strides have been made by services providers and regulators alike, to aid the growth of digital asset and its adoption. With that said, the deployment of an infrastructure for digital assets in emerging countries are still subject to strict regulatory norms. To understand how Asia Pacific can leverage off a decentralised financial ecosystem, we reached out to Michael Shaulov, CEO and Co-Founder of Fireblocks – digital asset infrastructure company.

The Digital Banker (TDB): How can a decentralised financial ecosystem transform some of the legacy systems and practices across Asia Pacific?

Michael Shaulov, CEO and Co-Founder of Fireblocks

Michael Shaulov: Decentralized finance is the catalyst for financial institutions to transition from legacy systems to blockchain-based systems. If you look at spaces such as cross-border payments, we are already seeing blockchain start to disrupt traditional financial systems. We have seen the implementation and commercialization of Project Ubin, out of Singapore, that looked to disrupt payment activity by tokenizing the Singapore Dollar (CBDC) and then linking up their domestic payments network with that of other jurisdictions (Bank of Canada) to enable a cross-border payment transaction utilizing CBDC stablecoins on both legs. This type of process re-imagination that is being led by central banks in the Asia Pacific has real implications on reducing the friction we currently experience today in terms of cross-border payments.

Given the enthusiasm associated with projects like Diem, and the engagement of PayPal with blockchain, disruption in the payments space is a key area to watch as we move further into 2021.

TDB: How can Fireblocks help its existing/potential APAC banking customers meet the demands of custody, tokenization, asset management, trading, lending and payment solutions across public and private blockchain networks?

Michael Shaulov: Due to reliance on legacy security technologies and sub-custody solutions, banks and financial institutions (FIs) are unable to meet increasing demand for digital asset services from customers and investors. Fireblocks enables banks and FIs to be at the forefront of this transformation with the most scaled and proven digital asset infrastructure. We help FIs commercialize their digital asset custody business with a suite of products and services across trading, lending, and payments. FIs can also rapidly deploy tokenized fiat, stablecoins, securities, and commodities across public and private blockchains.

TDB: Considering APAC, several new business models are competing with incumbent banks, how is well-positioned is Fireblocks to support the new business models as well as the booming digital bank industry in APAC?

Michael Shaulov: The flexibility of the Fireblocks platform means it can be easily customized to suit the needs of new business models like fintechs and neobanks. We enable these businesses to build a digital asset custody operation that fits their customers’ needs. Given our experience to date, we have seen the core requirements of these customer segments have significant overlap. First, a technology solution that services both these segments must provide the most robust security around protecting the private key and digital asset wallets holding their customer assets. Second, the solution must enable the type of connectivity that allows for seamless engagement with other market participants and eases the current hurdles to effective counterparty settlement. Finally, the technology solution must have infrastructure that allows a simple integration into legacy systems (e.g., API availability, O/EMS support, security/ governance tools).

With these components in place, our platform allows institutions to build product offerings on top of Fireblocks. For new digital banks and fintechs this may be ease of use and simplicity of platform engagement. For traditional FIs this may be the potential range of financial products they can offer on day 1 as a basis of the size and scale of the existing business offerings.

TDB: What are some of the regulatory best practices with regard to digital assets that have emerged in the last few years? How is Fireblocks aiding its widespread adoption?

Michael Shaulov: We do not view regulation as inherently good or bad – but, in our experience, it is almost always better when the local regulator is open to hearing the perspectives of market participants.  We are seeing a lot more interest from regulators on digital asset market issues, and Singapore is actually a great example of this.  Here, Fireblocks had the opportunity to engage with the Monetary Authority of Singapore’s (MAS) on multiple fronts, including via a public open comment process on recent payments legislation as well as direct discussions.

With more such engagements and opportunities, Fireblocks can make regulators aware of why customers choose Fireblocks’ software, hopefully leading the way for widespread adoption.

TDB: Looking at the next 5 years, what are some changes with regard to adoption and regulation of digital assets in the financial services industry that you hope to see?

Michael Shaulov: We think there are at least two very interesting areas of regulation where a thoughtful approach over the next few years can really drive broader digital asset adoption. The first is the utilization of Multiparty Computation (MPC) as a basis for secure digital asset custody. While MPC is already being adopted in the digital asset space, regulators are only now taking note of the comparative advantages of this technology vis-a-vis older, less secure concepts like multisig and cold storage. This would be a game-changer as the concept of what “secure digital asset infrastructure” should look like and we hope the same is ultimately reflected in law and regulation.

The second area that we see coming under greater scrutiny is the idea that being a “qualified custodian”  is a sound basis for determining which market participants are fit to secure digital assets. Prior to the advent of digital assets, storage of physical assets required significant infrastructure, like a cash or securities vault.  While it may have made sense early in the 20th century, technology providers like us have the ability to develop leading digital asset security solutions that would enable any financial institution to offer secure infrastructure that is on par with, or more secure than solutions that are offered by market participants who meet the technical definition of “qualified custodian.”

As regulators begin to understand how these applications can effectively be leveraged and the benefits of enabling businesses to innovate by adopting self-custodial technology, we think there is a real opportunity for a close re-examination of legacy financial regulations like customer fund custody requirements.

TDB: Talk to us about Fireblocks’ plans in Asia.

Michael Shaulov: We have been working closely with financial institutions in regions like Singapore and Hong Kong, enabling these early adopters with next-generation technology to secure their customer and investor funds. We’ve also seen increased demand from Thailand and South Korea where regulations are becoming more defined for the digital asset space.

We’re currently supporting over 40 customers based in APAC, including some of the biggest hedge funds and banks, by allowing them to securely build and manage their digital asset operations. We’ve selected Singapore as our HQ in APAC, with additional offices in Hong Kong. Today, we have eight employees and we’re looking to double that across multiple functions like Customer Success, Sales, Marketing, and Business Solutions, by the end of Q2.

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