Public Key Podcast

Everything You Need to Know About Liquidity Pools And Crypto Custody: Podcast Ep. 57

Episode 57 of the Public Key podcast is here! With real-world asset tokenization attracting institutions from TradFi to crypto assets, John Mannino (Chief Compliance Officer, sFOX) and Aleksandr Zhuk (Chief Information Security Officer, sFOX) join us to breakdown crypto liquidity pools, security concerns with crypto custody and provide their insights on the US crypto regulatory landscape.

You can listen or subscribe now on Spotify, Apple, or Audible. Keep reading for a full preview of episode 57.

Public Key Episode 57 preview: Crypto liquidity pools and what crypto custody looks like for institutions

If you are an investment firm or a traditional financial institution looking to dip your toes into the frigid waters of the digital asset market, where do you turn for a secure way to enter the space?

In this episode, Ian Andrews is joined by John Mannino (Chief Compliance Officer, sFOX) and Aleksandr Zhuk, also known as AZ (Chief Information Security Officer, sFOX), to answer this exact question. They discuss the security and transparency of open blockchains and the crucial role sFOX plays as a prime dealer for institutions in the digital asset industry. 

John and AZ also go in-depth on customer protection, digital asset insurance, and bankruptcy protection for crypto customers while chiming in on safety measures for decentralized finance (DeFi) and the current crypto regulatory situation in the US. 

Quote of the episode

“Look at a couple of these banks…and the big kind of crypto banks, right, which were Silvergate, Signature, right? One of the big reasons why these banks were so…favored in the crypto industry was, you know, they acknowledged the 24/7 nature of crypto and crypto trading and kind of the future of this, and they developed and innovated products that enabled the movement of fiat to occur on that schedule. They saw a problem in the traditional banking world, and they addressed it, and they focused on it.” – John Mannino (Chief Compliance Officer, sFOX)

Minute-by-minute episode breakdown

  • (2:45) – Exploring the journey from TradFi to cryptocurrency with John Mannino and Alexander Zuck of sFOX.
  • (7:56) – A discussion on cryptocurrency and its impact on security and transparency in the TradFi industry.
  • (12:50) – Exploring the origins of sFOX and the crucial role they play as a prime dealer for institutions across the crypto ecosystem.
  • (18:50) – Discussion on customer protection, digital asset insurance, and bankruptcy protection for crypto customers.
  • (26:35) – CISO’s role in a smaller organization and why smaller teams may be more productive 
  • (32:51) – Are some jurisdictions regulated by enforcement, and are key institutions fully committed to crypto investment products.
  • (36:23) – How to put in the proper safety measures when it comes to interacting with DeFi protocols 
  • (40:23) – How does the confusing US regulatory framework around crypto impact sFOX and the blockchain industry as a whole?

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Hey, everyone. Welcome back for another episode of Public Key. Today I’m joined by a duo from sFOX, John Mannino, chief compliance officer, and AZ, Alexander Zuck, chief information security officer. Gentlemen, welcome to the podcast.


Thank you. Delighted to be here.


Thanks, Ian. Yeah, I’m really excited for this.


John, stalking a little bit on LinkedIn in preparation for the conversation, you’ve spent a lot of time in traditional finance.

Goldman Sachs, I think, was pretty prominent on your CV. How did you go from that into cryptocurrency? What drew you in and down the rabbit hole, if you will?


It’s actually pretty funny when I look back during my time and tenure at Goldman, in some ways, I feel like all roads were leading to crypto in some way, shape or form in various different forms and factions, if you will. When I started, I started in a treasury function and I was in New York, and then I moved to Zurich actually for a few years. Was very involved in the banking side and the money movement side of things. Really at that time, really saw a lot of the challenges around just what was involved in moving money around the world, and a lot of the challenges that were associated with this.

This is obviously way before Bitcoin started or anything along those lines. From that period then, I actually moved to London for a few years and was focused on a client asset role and a client protection role. This whole concept of segregation of client assets and firm assets, which was just almost a true precursor to all of the FTX situation that we just have very recently now with this. Then after a few years there, I moved back to New York and really got involved in the derivative side of the business.

If you look at what happened with derivatives and in derivative market, it was this market that was a lot of unknowns, a lot of complexity. People didn’t understand it, but people were making a ton of money and it was very unregulated. All of these things just really paralleled a very crypto-focused environment. I was there during the whole 2008 financial crisis, and again, this was really, really a very enlightening time to be in the traditional finance world.

And especially at Goldman, where we were facing off against AIG, we were facing off against Lehman Brothers, we were facing off against Bear Stearns, right? My team, we were responsible, we were in the derivative side of things. We were all about collateral management and risk and all of those things. It became very much a focus around what are we doing and how are we protecting our clients? How are we protecting ourselves from what was happening in a macro environment?

It was just a really fascinating time. Then post that time, was when all of the regulatory environment began to really change, but this was then really at that time the birth of crypto. I remember a few people at work starting to talk about this and starting to talk about Bitcoin, and XRP and a couple of these others. I remember at that time, and this had to be probably maybe 2009, 2010, somewhere around there, I remember buying my very first cryptocurrency at that point.

It was through the wallets and all these things, but I was like, “That’s it?” I was so used to so much stuff in the traditional finance world and the settling, and the multiple days and all of these things, it’s like, “What do you mean that I have it already?” That was what really started, I would say, the rabbit hole because then I was just really fascinated by how this worked, and the blockchain technology and how blockchain will then really change.

I still am a firm believer of this very, very much so, how blockchain technology will really change the world, not just cryptocurrency, the underlying technology around how we live our everyday lives. It was very, very interesting too because when I left Goldman, we had first started a crypto desk, and it was a very small and doing some trading there. Then the very, very first, I would say, the very first crypto winter where people just really backed off and really just said, “You know what? I don’t know about this, this might be a fad.”

You look at a lot of the whole other organizations, and JPMorgan and Jimmy Diamond was nowhere near on board with any of this, and people were calling it a fad and it’s going to go away in a couple years. A lot of people retreated. When I left, there was a big retreat in the marketplace because people just, number one, I think just didn’t really fully understand it. Number two, were really just very unsure around what was going to be happening.

I was a very, very big, firm believer in it, but I backed away. I would say that was really how my career landed where I am, but then the rabbit hole that I went down.


Every step prepared you for this moment of the crypto industry. It’s amazing. Now, AZ, you similar background. You were at Salomon Brothers long ago, Citibank for a long time. You also draw from this traditional finance world.

But rather than compliance like John, you’re coming at it from the security background. I have to imagine one of the most stressful jobs in all of financial services, is being a CISO in the crypto industry these days. Tell us a little bit about your journey to this moment with sFOX. How did you end up here?


Thank you. I started as an engineer and so looking and working, having a vantage point of one of the world’s largest financial services organizations. On one hand, I’ve seen technology throughout my career emerge through the different phases where people started connecting computers together. The computers became something more meaningful to a regular human being, rather than just an academics and were locked in the lab.

Then the networking happened, and then all of a sudden, the biggest financial services organizations realized that this is the world and it’s a new thing. But as I protected those emerging networks, which quickly grew in sophistication. On the other side of things, there was always the part of finance, which was considered super critical. The century’s old plumbing, you do not touch that.

The trucks with cash still need to go around, and certain things only certain banks can do. The reason they can do only certain banks, because that plumbing was put long ago. That’s why these banks are important, untouchable, et cetera. As a technologist, I always had the curiosity of, “Why that? Why that?” In parallel, I see things emerging and things grow in sophistication. They become smaller, cooler, more beautiful, and then the old plumbing, the don’t touch one.

At that dichotomy, it was clearly only a matter of time, logically speaking. Now, looking backward and saying that somebody will go and figure out, “Hey, look, we can do it simpler,” and try something like this. But if we go back to the roots of how it all started, it wasn’t about the currency. It was about solving fundamental transparency problem, transparency and trustworthiness that is implicit in something.

It was so elegant when it first appeared, but I also came from the land of somebody who has been responsible for security of financial transactions. One thing that I was familiar from the early days, is that there are certain agencies such as Secret Service that monitor the safety of American financial system. The first reading of Bitcoin paper was for me actually, maybe somewhat unusual. I understand why these people remained anonymous, because who knows?

There was for a while, I recall in the media this air that, “Hey, this thing is iffy, this thing is spooky, and we got to figure out what that is.” But as I’ve seen it emerge and align with the rest of the world in terms of technological progression, ease of views and sophistication, it became clear. It’s almost unimaginable that it could have gone any other way. Here I am logically connected to this where I find myself. You started the question with, well, CISO job is a stressful job to begin with.

Crypto space adds a little bit of additional excitement to that. One of my favorite people in the CISO world, Steve Katz, once said in front of my students. When they asked, “Well, how do you sleep at night?” He said, “Well, I’m sleeping like a baby. I just wake up every three hours and cry.” I try not to disturb my family with my sobs at night. But ultimately, given where we operate, the space gives a certain amount of thrill certainly. But it also forces one to be restless in what I do and humble in what I do.

I fully realize that the technologies that we work with are emerging. That there are a lot of actors who would like to benefit from some disruptions in those technologies in different ways, sometimes not so nicely. That’s just another day in the office.


Yeah, that’s right. I was reflecting with our CEO, Michael Grainger, recently on the good old days of crypto, long before I got into the space, but he, like both of you, has been in and around crypto for over a decade. He pointed out that it used to be fairly routine that large exchanges would suffer hacking incidents or lost funds of some sort. You really don’t hear about that anymore. That’s a very rare incident.

Now obviously the attackers, I think, have shifted into the DeFi space and maybe grown some of the theft activity, but I think it’s a testament to people like yourself who have come in and brought a level of maturity to the operational security of the organization and the protection of client funds. John, a question for you maybe, sFOX I think plays this critical role as a prime dealer for institutions across the crypto ecosystem.

We probably have some listeners though that aren’t really familiar with the business because they’re not operating in that institutional context. Can you give us a rundown of what does sFOX do? How did the company come about, and where does it provide most value in the ecosystem today?


Yeah, sure. I would say just to level set it right here a little bit, sFOX is an acronym, it stands for San Francisco Open Exchange. Oftentimes, people are like, “What exactly does that mean?”


I thought it was just like a lot of people in crypto like dogs, you guys went with the fox. I had no idea. A little tougher, little more less evolved maybe.


No, actually the S stands for Super Fox.


There you go. There you go. Yeah.


It’s interesting, because our two founders, they created this company back in 2014. I often joke that we are somewhat of an elder statesman in the crypto space, because we’ve been around for a while and we’ve seen a few of these crypto winters, if you will. The genesis of how it all came about, was one of our co-founders came from the Airbnb organization and helped launch Airbnb as a product. Was really responsible for a lot of the payments side of things around how payments would operate with that.

Then another one of our co-founders was really focused and had done a lot of algorithmic trading applications. Both of these guys were your typical, nerdy computer guys, and it has a very similar Silicon Valley startup, two guys in a garage building out this company. The idea really came about was because people were just starting to really begin to trade cryptocurrencies in a larger scale. If you think about some basics around in the traditional finance world, and you want to buy some shares of Apple. You go and you buy it, and that you buy it in one place.

You go to your brokerage account and you buy it in one place. You go to NASDAQ and you purchase it and it’s on that one exchange. That’s the price that you get, and it’s pretty straightforward. But when you trade crypto, you trade it across, you could buy it across multiple, different exchanges. It became very clear and very evident that there was a great case for arbitrage here, where a slight price differential between one exchange and another exchange opened up a great opportunity to have a business model. That could really take advantage of the ARB that sits there between those two exchanges or multiple exchanges.


This is the original Bitcoin trade was the US/Japan ARB, right?


Exactly. That’s exactly right.


Yeah. I wasn’t around for that, but I’ve read about it. It sounds like that was how a ton of people in the 2014 era made quite a lot of money, was exploiting that price differential between the two markets.


Yeah, that’s right. That was the basis of everything here. The idea specifically around sFOX was, “Okay. What if we had a place where you had one account, and you had access to all of these different exchanges, plus in addition, maybe some OTC providers too, who are actually also trading out there?” Let me have a one-stop-shop where you can trade all your crypto, know that you’re getting a best price.

Know that you could provide some liquidity to your customers and to your clients, in the event that something was not so liquid. You had this great opportunity to take advantage of it all. That’s really the genesis around how it started. The idea really with this, was that the open exchange concept was we’re going to make this available to everybody, anybody and everybody.

Now we tend to focus, our focus tends to be more on institutional clients, but the idea here specifically, was this is available to anyone and we can make this available to anyone. I’ve had discussions before internally here of, “Okay, do we want to put some limits on things? Do we want to say you need X amount to open up an account or anything like that to focus on this?”

It’s been very clear and the message to me has always been that goes against our original concept here around making this an open exchange for everybody. That’s the idea really, is to have it be an open exchange where you can get best execution and great liquidity through your core trading activity. We can talk a little bit about how that model has evolved and other products and lines that are there. But from a core genesis of how the company started, that’s exactly how it began.


That’s awesome. Looking at the website, you’ve wired together 30 liquidity providers across 80 markets, and I’m assuming hundreds of retail exchanges tied into that and maybe some OTC desks or quite a few of those as well.

But I didn’t realize I can actually come in and sign up as a client directly and get access to the same network, the same trading capabilities.




Super cool. That’s a pretty unique business model. I’m not aware of anybody else who’s got that truly open nature. I really like that. Alex, one thing on my mind, we just had the Links Conference here in New York a couple weeks ago. Happily, I think a lot of the discussion was around customer protection, both from hacks like we see with Lazarus Group running amuck, stealing as much crypto as they can.

Things like ransomware, which had been on everybody’s mind maybe two years ago. But also more focus on protection of individual client funds, almost saving people from themselves a little bit, when it comes to some of these more sophisticated financial scams and phishing attempts. How do you think about that in the space?

I guess since you really have both institutional and potentially retail clients, what are you doing to make sure that your customers aren’t mistakenly running into one of these schemes and losing a bunch of very valuable digital assets?


Napoleon once famously said, “Never stop an enemy in the process of making a mistake.” I think we do a complete reverse here. Always do your best to stop your customer from making a mistake, and the best way to do so is to do so proactively, to do so strategically. It starts with basic human empathy. We all are human actors. We have been in risk management for a long time.

And sFOX, beside the magic of being an all-in-one provider of that increased liquidity that comes with different choices and sophistication of tooling that we offer, that is indeed unmatched. But before all of that, and that’s the ethos of the organization as John described it is that, “Well, why do I need to carry three pagers and four phones when I’m trying to communicate to the world?”

I’ve been there as a technologist, but that doesn’t have to be that way. That starts with empathy. Same thing, security starts and begins with empathy. Somewhere in between, there is a lot of very rigorous, very pragmatic risk management. A lot of what ifs, a lot of doing your best at night and otherwise, of thinking what some of the unknowns that we are still not aware of. But ultimately, waking up and doing something about it.

Okay. Here are the thing that our customers should have, and here are the thing that our customers are likely to do differently or try to put themselves into a pickle, if you will. Also, listening to people, active listening is still very much there, technology or otherwise. Because every time there is a stream of somebody coming in with something, we’ll listen. I’m involved directly in all of these conversations with customers seeking help, which we also use as a feedback loop for making our product safer, our messaging clear.


Yeah, I love the approach. One of the things that I’m very interested in, I think this is topical as we’ve all watched the banking crisis unfold.

The question about FDIC insurance on retail deposits at banks, is this I think new for you all, bankruptcy protected digital asset insurance? What is that solution? Who’s that for? What does it do for us?




John, you want to take that one? Yeah.


Yeah. No, I’m happy to take it. Just to be clear, this is not FDIC insurance. I don’t want to get in trouble by the regulators. What we offer, so we recognized this a while ago and we began looking at a couple different options here. One of the things I would say several years ago we began looking at, is becoming actually a trust company. We have a division now, which is a Wyoming based trust company through the Wyoming Division of Banking that has oversight by them.

One of the things we looked at really early on, was how can we offer some protection, if you will, for our clients in this space way before the whole FTX debacle happened? This was really around offering, having a custody solution. The ability to have a clear custody model for our clients in this space. What we have done and really what we’ve created, is we have this trust company now, which does have regulatory oversight by the Wyoming Division of Banking.

Really what this does, is it offers bankruptcy protection in very much the unlikely event that we were to go bankrupt, those assets are clearly ring-fenced and protected against the general creditor’s situation. With FTX, it was all just one big, commingled mess. All of FTX’s customers are in line with the general creditors of everybody else. There was no segregation, there was no protection, and if those customers get anything, it’ll probably be pennies on the dollar through the whole bankruptcy unwind.

This again, goes back, circles all the way back to again, my client asset, client protection background a little bit here, where there is clear segregation and clear differentiation between firm assets and client assets. This is a really, really big deal. It’s interesting because before FTX, I was saying customers and clients came to us all the time and how do I get best execution? How do I have good liquidity? That was a focus, they were laser focused on that. Post FTX, suddenly everything shifted.

They’re like, “How do I ensure that my assets are safe, that I’m not going to just lose everything tomorrow?” That’s really, really what this offering provides, is it offers custody protection and bankruptcy protection through custody in a go-forward basis. Then what we’ve done, and this goes back to this whole concept of having this be open and available for everyone, what we said is we believe that this is somewhat of a fundamental right for people to have.

What we’ve done is we’ve made this offering free, which is really pretty unheard of in the industry, for our clients up to $250,000 worth of assets under management. We still offer a protection above that and there’s just a tiered fee structure. But for the average investor, this is just a no-brainer.


It’s massive.


This is free protection in the event of bankruptcy. You can come to us, you can get best execution, you can get great liquidity, and you have this ability to ensuring that your assets are protected.

This is really, really, really important for us. We feel like that this is somewhat of a big game changer for the industry.


I think it’s terrific. I’ve had a couple conversations recently. We have an upcoming episode of the podcast with the CEO of MX Global, which is one of the leading exchanges out of Malaysia. I think they’re one of four registered exchanges in the country. He was making the point that there, this is the standard rule. Full segregation on both the custodial side from the exchange operation and also on the fiat on-ramp, off-ramp. They can’t actually take customer fiat to ring it in his case directly from the customers.

There has to be a third-party payments intermediary. Their left and right hands are tied off, and it completely avoids what we’ve seen where there was a blending of the assets of the exchange with the assets of the customer. Then losses are co-mingled and it’s very hard to untangle.

This trend seems like it will be one of the big outcomes from the experience of last year is, “Hey, we really want to have some separation, some hard walls between these two things.” Even if in your case, it’s still part of the organization, there’s clear policy and operational controls, I think, that probably are net good for the consumer at the end of the day.

I love the guarantee of protection there being free to anybody up to 250. That’s just such a peace of mind. Gets us all back to sleeping like babies where we only wake up every three hours to cry about the state of the crypto market. That’s really neat. AZ, we recently had the CISO from Coinbase joined us at our Links Conference recently. He was on the podcast. We talked a lot about how the advantage that he had at Coinbase was that Brian Armstrong hired him when, I think, they were a team of 10 or 12 people, something like that. Very early in the trajectory of the company.

Before there was a lot at risk, he could start building the foundation of the organization from a security perspective. Over the years, they’ve always treated that as priority number one. I gathered very similar to your organization as well. I’m curious to hear over the time that you’ve been at sFOX, how have you seen security across the industry improve? And particularly anything that you feel like you’ve done at sFOX that sets you up in this world-class position as a leading and safe platform.


Thank you. First of all, I want to tap a little bit back on the question that you and John discussed prior, which is the custody protection and the bankruptcy protection. One thing that is very easy to miss in this or assume that it was always there, but I think it’s very fundamental. It also was a deciding factor for me before I joined sFOX that look, these things do not happen overnight or even over a few months. It’s not something like we looked at FTX, we said, “That would be a nice little add-on to slap on our product.”

No, no, no, that’s not. This is actually something that had been on the minds of our leadership. When you speak with our CEO, you will hear that concern for the consumers and users of our product. It’s been there for a long time. It takes a lot of time and effort, mutual effort, to align yourself with the new regulatory requirement and get that done. We have been doing this preparation for custody protection way before FTX happened, so that’s number one. Number two, that is actually the spirit that is decisive.

One of the professional hazards, if you will, for any CISO coming in to a new organization. Yes, I was lucky to be the first CISO at sFOX, which is again, only just building something from ground up is a very exciting journey that I have taken several times over. But it’s also a humbling one, you always need to focus on what’s most important. But one of the professional risks for a CISO, is coming in and becoming a poster CISO. Well, we need a CISO. Why do we need a CISO? Because they’re saying we need a CISO.

We need to show to the world that we need a CISO. One of the ways to evaluate for the real versus poster-level interest in having a CISO, is having these detailed conversations with the co-founders, with the CEO of the company, and aligning the reporting structure, et cetera, et cetera. This is all in place at sFOX as any CISO would dream about. I work directly with the CEO and whenever I read another article, “Well, CISO should have a seat at the table.” I’m lucky to say that I have a trimmed seat. It’s actually more like an armchair.

My CEO listens to what I have to say. My leadership team listens to what I have to say. When we talk about another exciting thing that also I think is very special about the young organizations like ours, is that when we talk about sizing, I think it’s very disproportional. I don’t want to denigrate necessarily the more classical, more established organizations. But I think it is fair to say that every single individual that works in a smaller team like ours, is probably worth five to 10 people productivity and brain-wise in a more traditional, more established settings, just goes with the territory.

Whenever I talk about smaller team sizes, et cetera, I am very tempted to say, “Hey, let me tell you about the team. I can put one of these people in the room, and they will probably run circles around an average 10 you can pick.” But with that said, it’s a great learning environment. Again, it’s so wonderful to be among people where you are not the smartest person in the room. It’s enabling that crowd and doing it for a noble purpose of well, keeping people’s assets secure and making it more secure from day-to-day, however incremental the progress is. It’s a dream job.


That’s so cool. I love the focus on team and be able to lead, recruit, and put the right people in the right places to make them successful. That’s a terrific strategy. John, one thing I’m curious about the last year, it’s been hard to tell which way the market’s going for crypto, for equities, for everything, but real estate probably too. But in crypto specifically, I think a lot of us are trying to judge the rate of it global adoption.

I’m a fan of the graph that charts the number of people in crypto and the number of people that adopted the internet starting back in the ’90s. We’re in 1999, if you will, right about now in terms of equivalent adoption phases. Maybe we just went through the big dot-com crash or maybe we’re about to encounter it, I’m not sure. But a lot of people ask me like, “Hey, what’s going on with the banks, the traditional, big financial players?”

Since your business deals so much with institutional, maybe you have some insight on this, but I struggle to reconcile the headlines. You mentioned Jamie Diamond earlier, he’s clearly no fan of crypto. But then on the other hand, you’ve got Bank of New York and State Street and Fidelity all moving into the space seemingly unfazed by the headlines in the news. What’s your take on this?


Yeah. I guess we should all be following Matt Damon’s lead where fortune favors the brave. Look, this is what I will just say on this, is just that I think there’s some organizations who historically have always been on the sidelines. Look, I think I get it because I think people, there’s so much uncertainty specifically in the regulatory environment. You could see this with just what’s happening more broadly and a lot of the push that’s happening to the SEC specifically in this space.

Especially since they have really taken the stance of this through regulation by enforcement, as opposed to actually creating some specific rules that we could all follow. Some of the players are like, “Okay. Well, you know what? We’re going to wait on the sidelines. We’re going to wait till the dust settles and then we’ll see what happens.” But for me, I look at this again, bringing this back to the derivative space, where you had players that really established themselves early on in a derivatives market and really got themselves well entrenched in that space.

I’m not saying that all those players didn’t make mistakes along the way, but they have really established themselves as the leads. While others then after the fact, are now have always been just in that catch up space and trying to catch up with others. I feel like that’s exactly what is happening in this space then too, in the sense that I think you’re going to have some big, key leaders. Then I think you’re going to have some of these larger organizations really, really struggling to then try and play catch up and capture this market.

But I think for me, the thing that really just stands out here, is just that there is an acceptance that this is a new asset class. That if we don’t build and move forward with what’s happening in this space, people will be left behind, organizations will be left behind. I think that’s why you’re seeing some of the bigger players and some of these industry leaders in other industries come forward and say, “We’re not going to miss this boat in this space.”




The banking side of things has also just been a crazy situation then too. When you look at a couple of these banks and the big crypto banks, which were Silvergate, Signature. One of the big reasons why these banks were so favored in the crypto industry, was they acknowledged the 24/7 nature of crypto and crypto trading and the future of this. They developed and innovated products that enabled the movement of fiat to incur on that schedule.

They recognized, they saw a problem in the traditional banking world, and they addressed it and they focused on it. I find it really interesting that these banks were really punished for innovating in a manner that really looked towards what we needed as the whole industry evolved. Then completely ironically, then you have this whole new Fed product called FedNow, which is basically exactly what these guys have been doing.

I think that there’s been undue pressure that has been placed upon these organizations because of their association with crypto. Again, I think that this is because they are disruptors in this traditional finance world. And while they may no longer be around, there are going to be other banks that are going to step up and move into this arena.

When we look back at history in this space, I think we will look back at those organizations as being part of the trailblazers, that helped shift and change the way that we do traditional banking, and the way that we use crypto in a go-forward basis.


Yeah. That’s a great perspective. AZ, I’m curious, we’ve touched on DeFi a couple times, how do you all look at DeFi? I would guess that it’s a source of liquidity, it’s a trading venue just like any other. We’re going to wire them all together. That must imply a different set of security risks.

With another exchange or a trading desk, you can look the counterparty in the eye and you know what you’re getting into. That doesn’t exist in the world of DeFi. There might be a Dow organization, there might be some anonymous operators. It’s hard to nail it down to a corporation. How do you all approach this? How are you thinking about DeFi if you haven’t gotten into it yet?


First of all, I think the risk management practices if you’re serious about it are the same. I might say that at least in certain cases, looking in the eyes of the counterparty should not be sufficient by itself, a sufficient determinant of [inaudible 00:44:36].


Very much agree.


Right, especially if they look pretty and all of that other stuff. Instead, there is a multi you should have, and that’s what we have in place. There is a multidimensional risk analysis process. You look at somebody anew, you go past the shiny interface, past the white paper that says, “Here’s how are we going to change the world.” And start looking at the more boring but ultimately fundamental way of, “Okay. All right. Do you have a security program in place? Have you had any blips or maybe independent assessments of that security done recently?”

Then it all falls in place and we do that for multiple dimensions. I do my part, colleagues do theirs. It adds additional thrill when you can’t tell who the people are behind the thing. But as an information security professional, there are ways to find out more about the people and you just do your best. There is public information all over the place. There are some implicit factors you can gather to get a fair amount of, if not confidence, at least a fair amount of… Well, I guess confidence, yes, that you can do certain things with this business.

You can assign a certain level of risk or certain grade of risk to this particular technology or this particular product. Then we decide to go from there, based on business assessment, et cetera.


Yeah, it makes total sense. It’s just another trading venue on some level. You run the same counterparty risk modeling that you would on others. Gentlemen, we’re running low on time. I want to ask one last question. I would be remiss, I think, to let you go without talking about the state of regulations here in the US at the current moment, it’s a complex landscape.

It feels like financial regulators are catching up after the chaos of last year, and now bringing a fair amount of confusion to the market about what’s actually allowed, what’s not allowed. What even are these digital assets that we’re spending so much time thinking and talking about? How does sFOX view the situation?

You’re obviously a US based company today, we’re hearing some rumors about people packing up and moving to a different jurisdiction potentially as one solution. How’s this affecting your business? What’s your perspective and outlook? What should we expect over the next year?


Yeah. What I will say is that I spend most of my day focusing in around a lot of these types of issues. We are an international business, so these global regulations definitely impact us. I look at it from a couple different lenses. Number one, I find it amazing that the US has struggled so much to get its act together, especially when you look at something like what’s happening in Europe and the passage of the MICA legislation.

You’re talking about the European Union, 27 different countries, all of the complexity and the red tape that’s associated with that. Yet this organization was now able to pass global legislation that is going to impact the entire European Union, and how different businesses around the globe will interact with European clients. I feel like right now, the US is clearly behind them all in this space. I think sometimes you need to tackle these things in bits and pieces.

I think one of the first things that is being addressed and we’ll likely see in short order, is something around stable coins. If you go all the way back and before the FTX implosion and everything like that. Again, the crazy thing with FTX, which I’ve always just said is that at the end of the day, it really had nothing to do with crypto. It was good old-fashioned fraud. It was co-mingling of client assets and firm assets. You can look back not even that far to MF Global, which was the last time that this big situations happen.

It’s virtually the same thing. It’s just that the product that people were trading were crypto, but at the end of the day, what was happening was exactly that, was just this co-mingling of firm assets and client assets. From a regulatory perspective though, I think number one is going to be, the first thing we’re going to see is some stable coin legislation, which I believe we’re going to see. I think we’re going to see the prohibition of algorithmic stable coins like Terra LUNA was.

To me, that’s the low-hanging fruit. That’s the easy stuff. I think people understand that, people get it. Again, I circle back to the derivatives world because we had an implosion. We were able to create something that looked at this. At the end of the day, what happened in the derivative space I think is going to be very, very similar to what will probably happen in the crypto space. You’ll have these dual regulators overseeing different components of the market.

In the derivative space, in the post Dodd-Frank world, what happened was the CFTC had oversight over the vast majority of the derivative markets, including interest rate swaps and commodities and all those things. What the SEC had, was they still have oversight of derivatives if the underlying of the derivative is considered a security. That’s like this bifurcation of the CFTC overseeing most of it, the SEC overseeing a component of it that has a security component.

What needs to happen then is a codification of what constitutes a security from a token perspective versus what is a commodity. That’s the whole thing. We don’t need a whole huge new rule set and everything like that. You can make this work with the existing infrastructure and framework that we have. You just need clear definitions and you need to reach a consensus. That is what we don’t have right now, because you have the chair of the SEC saying one thing, saying basically everything’s a security.

Then you have the CFTC going after organizations like finance, who are basically saying you fall under these commodity rules. Everyone’s like, “Well, where do I turn and what do I do, and who do I look towards?” I think we are not doing ourselves any favors by not making forward progress on this. And not someone stepping up to bat and saying, “Look, this is what we need.” Like I said, we don’t need to create something whole and brand new, we can really use what we have. We just need some clear guidelines on it now. That’s why.


Well, John, that’s an amazing place to wrap. I think I’ve heard that same sentiment from so many guests on this show, which is we’re legitimate business operators, we care about consumer protection, we want to follow the rules.

We see legitimate value in the business services we’re providing, just give us the rules in a way that we can actually abide by them and we’re happy to play ball. I love the perspective. AZ, John Mannino, thanks so much for joining us on Public Key.


Thank you.


Thanks, Ian.