Patricia Ho on finding the best regulatory home for crypto companies

0:00I'm ashon Addison from the cryptocoin show and today on blockchain interviews with Patricia ho general counsel of scroll Patricia welcome to the show and thanks for taking the time thanks Ashton it's great to talk to you and thanks for having me here you're very welcome excited to dive into the regulatory environments of cryptocurrency not just in the US Hong

0:22Kong Singapore London all around the world I know you're very tuned in with that and there's a lot of updates happening as crypto becomes more mainstream uh it's it's hard to follow along unless you're really paying attention like you are uh and that's part of your job uh at scroll as well I know um would love to hear first of all before we dive into the whole world uh a

0:44little bit about yourself uh scroll maybe what is scroll for those who aren't familiar and your role there as general counsel and then we can dive into all the latest updates sure thank you Ashton so a little bit about scroll uh scroll is actually a to roll up scaling solution for ethereum so we use um what we call zero knowledge proof technology to scale

1:08the use of ethereum to make it cheaper and faster for developers and user to interact and and basically build their decentralized applications on ethereum now my name is Patricia as you mentioned I'm based in Hong Kong um spent a lot of time in Asia um worked sort of everywhere um globally London us other parts of Asia as well my career um I before scroll I was actually at one of

1:34the largest crypto exchanges um in the world I was at okx and prior to that I was in fintech um with weab one of the unicorn um digital Banking and Digital Landing platform out here in Asia and I actually come from a traditional Finance background and train as a lawyer um back in London uh during the global financial crisis so very interesting times um

1:57particularly when we think about um a lot of you know what we're going through in the past year in crypto sort of reminds me of the time back in 0809 when um the traditional Financial system was also um you know coming through with their difficulties um so that's a little bit about myself um I think crypto is a super interesting space um particularly

2:18with um people from trafi I think there's a lot of opportunities um for for people like us to contribute very cool thank you Patricia and yeah I feel like right now is a great time to be paying attention as you mentioned I think more people in trafi are starting to pay attention especially with the ETF news and other traditional Financial vehicles coming in to bitcoin and the

2:40crypto space and with that also comes regulation and now I think at the Forefront of the regulatory news is sort of the US although it's not the entire world you know there are many other parts of innovation happening but the US seems to have a lot of media around it I'm guessing that you've been paying attention to the regulatory environments in the US what's happening maybe you can

3:01talk a little bit about what are the most important topics right now for regulation in the US sure yeah so I mean crypto is really a global uh business uh and with a project like scroll we're open source from day1 um and we have our team is decentralized across like many different time zones so there's really no you know one country or one market or one

3:25continent even that we focus our efforts and that comes with just being you know very importantly we have to be on top of all the regulatory developments around the world now us is very very interesting because I would say it's been leading the innovation in the technology in the decentralized finance space in the blockchain technology space um what has been a bit less fortunate is

3:50really the regulatory uncertainty that we've been seeing in the past um year year and a half and we see that in very high-profile news like the ftfs trial and numerous enforcement actions that we see both the SEC and the cftc taking against both really large platforms like coinbase and binance as well as the smaller projects um you know the the libraries of the world um uh um and and

4:18I think it's quite unfortunate because uh it it does have an impeding impact on the Innovation a lot of project teams I talk to that are based out in in the US um Frankly Speaking they're a little bit um cautious about being very high profile in what they're developing um they would uh you know think about whether they need to block us users onto their apps um and that creates a very

4:43strange situation because they want to build something um but they find that whatever they build may not be suitable for the US market um and I feel that they're also looking for other ways um to grow um their protocol particularly you know going to the European market coming out to Asia um so I'm certainly seeing a lot of project teams coming to Asia both Hong Kong and Singapore in the

5:05past 3 to six months just exploring opportunities to set up here um a little bit more on the regulations um I think for example cases like Ripple cases like Unis swap um these are Enforcement cases that you know have been sort of dominating um the news in the past few months um some of them are more easy to understand than others and you know for the Ripple case they make a bated

5:29decision against whether something is offered to institutional investors on a primary basis or offered um to retail investors on a secondary um you know exchange right that is um in a sense not really that logical um because if you apply the US howwi test to determine what is the Securities it doesn't quite make that distinction between whether something is a primary offer or

5:53secondary transaction um and uh and and I'm afraid that some of these decisions leave you know project teams or other people in the industry um with some uncertainty about how to plan forward in terms of taking their project next step further right like are they going to potentially get into trouble or not um some of the bigger platforms like coinbase um they've been you know

6:16engaging with Regulators for many years and very vocal about it but even they are not spared from a lot of the SEC enforcements and um for example they're staking as a service um that has been um alleged by the SEC as offering Securities and that's also very difficult for the industry to get move forward on you know whether they should do more on staking or whether they

6:39should step back so I'm just going to pause here I think the state of the US is uh is difficult and I personally don't think there will be much more clarity coming out until probably the election and Congress basically being able to make clearer laws which of course takes some time yeah no great points Patricia and I did see some news this week about Biden saying to Congress

7:05that not necessarily you know we need to look at the regulatory environment more just we need to crack down more which could mean anything but it seems so far that it's sort of meaning cracked down in the wrong areas as we've seen with coinbase ripple Unis swap or Library the example that you gave all very legitimate companies that are bringing Innovation to the financial world uh and

7:27and meanwhile you know it looks like we've in Justice with FTX but there was also you know throughout 2022 a lot of other breakdowns of companies Celsius Voyager Etc that their names had almost never been spoken and they were the ones who seemed to have done the most wrongdoing um on on their customers and on US citizens citizens and residents and they seem to focus on Library who

7:53had done nothing wrong at all and I feel like that's part of the reason why a lot of these new companies as you're saying they're they're looking looking at other markets to start expanding because they even if they're doing everything right they don't want to have to go through the scrutiny of uh the SEC coming at them because they're targeting the wrong

8:13actors ABS absolutely yeah I I think this is unfortunately the consequence of you know having a series of enforcement action and you know potentially not very logical um you know from legal principle basis sort of decisions um coming to light um I think with some of the bad players like FTX of the worlds right there's clearly a fraudulent element to

8:37the operations and you know I I do agree with um the prosecutors that you know when it's a fraudulent operation it doesn't matter whether you're in crypto or any other industry you know frauds are just something that we need to protect all investors against um so it's it's a bit unfortunate that you know it's given crypto and the other good builders in crypto a bit of a hard time

8:59um you know just just by association of being in the same industry and I hope that you know with the FTX trials now being um more settled at least um until March will get the sentencing um but it's sort of the the initial sort of excitement and focus has gone down now so I hope that the industry can go back to building and also stay tuned of the opportunities that um you know are

9:22around globally um maybe we can talk a little bit about that and for the companies at least if they move you know I've seen even with coinbase I believe was moving part of their operations overseas it's not like you know they can still service most of the world minus the us if they want to play it safe but I know a lot of companies are going to Singapore in Hong

9:46Kong where you are and you're probably familiar with that can you talk about the environment there and and maybe why are they choosing to go there and what is it like for them if they go there is it the opposite where you know they're just like open the doors and please come in and and we want your business actually it is a bit like that action um you know no exaggeration

10:06intended at all um and it's it's uh it's my you know it's my observation it's also shared by a lot of friends that have come here from Europe and the US um in the past few months so I think um let's start from the beginning so so Hong Kong um last year in October um basically came out with a government policy to support um you know Hong Kong becoming the next Global health for

10:30virtual assets um so with a coordinated um effort um it's between the policy makers the government The Regulators as well as like the ecosystem so they're really encouraging businesses web3 businesses virtual asset businesses to come and set up um so with that you already have a much more friendly um sort of welcome and I can tell you that it is actually very accessible to have

10:54meetings with The Regulators in Hong Kong so the Securities and Futures commission which is the Securities Reg regor as well as the Hong Kong monetary Authority which is going to be the stable coin regulator um and I think there is a recognition that the industry is growing at a very quick Innovative pace and The Regulators therefore want to talk to the market participant to

11:15understand defi a lot better to understand like what is the need for liquidity like and to understand how is that different from traditional financial institutions and what are some of the bridges the gaps that the crypto industry can work with the traditional industry so in the conversations I've participated um for example with the Hong Kong monetary Authority on stable

11:37coins um have been very open and transparent discussions so that's um one thing that uh has been very very encouraging and on the regulation side actually um there's been a lot of work already done as well so Hong Kong already has enacted um a virtual asset services provider regime um in June of this this year um this allows crypto trading platforms to come and apply for

12:05a license to operate in the city now this is also open to retail investors as well so it's very clear that you know if you want to offer a centralized exchange there is an Avenue for you to do this with regulatory recognition obviously there's a lot of um custody requirements agregation of client assets um there's also a lot of policies and procedur risk management

12:30all the stuff that you would expect from a fully fledged regulatory regime but at least there is a way and it's very clear and how you get there that's really good to hear and two things you mentioned there were about Defi and stable coins as well I feel like there's a a growing transition from uh centralized trading platforms which obviously have to follow all the rules

12:55and then when you throw in Defi and decentralized trading it it it there's slight differences on how those platforms work and you know if there's not as many centralized parties that are there to help control the assets for you um but the protocol probably still has to follow some rules and of course with defi if you want to mitigate risk stable coins are really nice add-on to ensure

13:18that you're not taking too much risk and I feel like there's probably a lot of Regulation most people don't know the inner workings of the regulation around stable coins um but obviously you want to make sure that they're stable and and the proper assets are backing them as well maybe you can talk about stable coins and defi part of it and what sort

13:37of applies in terms of Regulation what's needed for those two parts of the industry to grow sure yeah staple coin is a really hot topic and it's a really important one because I feel that it is going to be that Catalyst to bring on the next billion of users including bring on all the trfi bring on all the fintech guys into the crypto space um is act is also

14:00critically important in terms of being a trading pair for crypto assets so um a little bit around you know how Regulators are thinking about stable coins I think um in Hong Kong Singapore and also the UK there are already um you know different levels of um government policy supporting a stable coin regime um so Singapore announced a framework Hong Kong for St for license Singapore

14:27uh staple coins Hong Kong is due to announce a consultation on Hong Kong dollar stable coin and UK um end of October also announced their plan for um UK stable coin to be used as a means of retail payment so you can see that you know we're starting from I I guess the simplest form of stable coin these are staple coins that are referenced to fiat currency and they are fully backed by

14:53reserved assets so to your point about maintaining stability I think regulators are starting with you know the safest sort of types of stable coins the ones that you can point to full backing reserves so to to to maintain the stability between um the state coin value and the underlying assets value and you mentioned there about the uh UK and Europe as well you know that

15:19obviously that's a huge market and that there's a lot of countries that sort of need to communicate and get on on the same page so that they can hopefully stay up to the innovation of what we're seeing in Southeast Asia uh I'm curious in where the Innovation is being led in Europe and you know how far along are they compared to the rest of the world yeah so I think that London is

15:42becoming a hub for some crypto projects um I think France is as well although France I think being part of the European Union obviously they have their own comprehensive regime on Micah uh which is also by face and it's quite rigorous uh regulatory standards so I think else you know elsewhere around in Europe I I do think that UK is going to be one of the the Innovative centers it

16:06also benefits from being traditionally a major International Financial Center because you know stable coins to make something sustainable um and and and used by many people it's about liquidity so you do need a very deep liquidity and trading market for that St coin to take off and be widely adopted no that's a great Point um I I feel like right now um there's also a rise in

16:34people are looking for other ways to innovate stable coins I'm not sure if it needs Innovation there's usdt tether and usdc circle as sort of the main ones but there's also movements saying you know they're they're we don't agree with the companies that are running them and we want to make decentralized stable coins or we want to experiment with ways to

16:56back other assets or maybe make buoyant stable coins so that you know it's not like the US dollar being uh depreciated over over the years you know how can we sort of make it truly stable and not uh according to the US inflation I'm curious if you know anything about the are the future of stable coins and do you think that the two stable main stable coins that we see right now will

17:17be the main ones for years to come that's a really interesting question I think um when I look at usdc um aler Cole and I look at tther and sort of the different paths they've taken um it is a very different approach I think it is quite um I think it's quite obvious that circle is going down the license route um they're very engaging with a number of regulators

17:41globally um they're also engaging with Regulators in various um markets in Asia um to and they want to serve the the traffi they want to work with the Institutions and be able to um you know increase the adoption of of of usdc um us DT tether actually is the most used um stable coin from a Crypton native perspective um so a lot of the D5 protocols and also a lot of the trading

18:08pairs are actually um you know using usdt um and I think they're also becoming more visible I would say with their recent um CEO um you know being appointed Paulo who was their previous CTO so I think time will tell in terms of like you know whether they also go down a more regulated path or they continue what they're doing now which is which is really great I mean they're

18:32very very impactful from a crypto native ecosystem perspective now to your point about whether those are the two dominant stable coins going forward um I don't know but I would think that there is space for Innovation for not just viat referenced stable coins for example we can see D um the makerel stable coins and you know other even curve you know

18:58that their stable coins there's a lot of innovation in terms of the stabilization mechanism um where I'm coming from is that The Regulators are not ready to give regulatory recognition on these sort of algorithmic stable coins just yet I think part of the reason is also um with Luna the collapse of Luna last year um so I think we need to give them a little bit more time um to really kind

19:23of battle test some of these stabilizing mechanisms in order for them to get comfortable but this is one area for example where I think like the Hong Kong Regulators um are very very open to discussions and and learning about what works what doesn't work and to work with the industry to find a way great insights and we've sort of talked a little bit about most of the

19:46parts of the world there's one other one that I want to touch on that is very growing space is Dubai in the Middle East seems to be you know I'm seeing so many giant blockchain conferences there I know they have uh innov Innovation zones and great company uh setups for blockchain companies what do you think about them as an upcoming space for the the blockchain uh startups and the

20:11regulatory environment there in the Middle East I am very bullish on the Middle East um there is actually a ripple conference that is going on right now um Ripple matako and they have actually today announced a partnership with HSBC as well so really um going into the institutional space and and helping institutional adoption of of crypto assets and stable coins um I think Dubai

20:37um from a regulatory environment perspective is extremely open so they have set up VAR which is their ver virtual asset regulatory Authority not very long ago um and again they are highly engaging with the industries I have many friends in contacts that are having regular roundtables in Dubai with The Regulators um they are you know engaging with not just centralized

20:59exchange but also custodians so they have a number of different types of licenses already um so it's a very ready made regime already and I believe there's a lot of um excitement about you know people setting up in Dubai and also Abu Dhabi as well so it's the entire GCC the gulf um you know region is becoming quite a hub for major talents and also U

21:22major C platforms toide sh that's great to know and if you were to go and start a a three company and and you know you weren't located anywhere specifically where would you go to do that would it be Hong Kong I would definitely be in Asia or the Middle East um because I think that there is really a lot of Tailwind in this part of the world um and there's a

21:46lot of room for experimentation um so it's uh it's sort of a very open um kind of environment where you feel that you can test a lot of things out especially if you are starting your own project um you you sometimes want to test different ideas you want to fail fast you want to know you know what are things I can improve on to iterate on that product and I

22:06think this is the best place to do it with with the that level of Engagement with regulators and the industry as well very cool Patricia I appreciate all the insights into uh the whole world it's hard enough to follow along with the US News uh when you know you're focused on so many other parts of the industry so I appreciate your expertise in all of it

22:25um what what is the best way for people to follow along with this or your work or scroll yeah so definitely follow um you know scroll on X or Twitter um it's scroll zkp and I am also on LinkedIn I write prolifically about regulatory developments around the world um so I just recently wrote a piece about tokenized Securities uh which was something that came out about six days

22:51ago in Hong Kong so if you're interested in real asset tokenization um and what are the regulations and Hong Kong about that um feel free to follow me uh I'll soon be writing more about stable coins as well as the Hong Kong regime um comes into play um later this month very cool and I can leave the link to your profile and scroll in the show notes below as

23:12well uh I really appreciate you taking the time all the best with everything moving forward in in your work and and hopefully for the entire regulatory environment of crypto and blockchain and let's definitely follow up in the near future thank you ashon and happy building