Seamus Donoghue on institutional custody of digital assets

0:01i'm ashton addison from event chain for investmentpitch media and fintech news network and today on blockchain interviews we have seamus donahue the vp of sales and business development at medico sheamus welcome to the show and thanks for taking the time to be here today hi ashton thanks for having me i'm really excited for our discussion if we could just kick it off first with

0:21a little bit of background on yourself and your expertise and trading blockchain and finance then we'll jump into medico after that sure i've been in finance well for quite a while i started a bank in 1991 in canada as well um i've worked for most of the the major banks in wholesale trading side jp morgan deutsche bank barclays merrill lynch and a short while hedge fund and a lot

0:43of that was running wholesale trading businesses and eventually i left the left banking business to get into my startup space um i was very much involved in the intersection of trading and technology and i launched a company around wholesale trading for commodities i ran that for four years and uh then migrated into crypto markets i mean moving from

1:01gold commodities i was really focused on the gold market and moved from gold into into hard assets like bitcoin wasn't such a big leap so i was running i ran a swiss crypto exchange in asia and a small anecdote when i asked how we were managing the the keys for clients for the clients assets i was told we have two trusted employees that held those keys

1:20and that brought me really to the to the issue that that's not the right kind of trust for an exchange and eventually uh i got introduced to mataco and joined them and joined them in 2018 to help commercialize their business very interesting and yeah that's quite the journey through through banking to startups and then gold and silver and yeah into the digital gold

1:40known as bitcoin and the cryptocurrency space it's super exciting and it's growing so quickly right now with a lot of institutional interest coming in and that's sort of where medico fits in so now can you help me understand more about medico's business and your current goals right now sure so we were set up in 2015 always with an original with a focus on

2:01institutional market so we launched our main product in 2018 which is basically focused on on delivering a product to large banks financial institutions to enable them to securely integrate store and manage digital assets those can be cryptocurrencies or other tokens let's say so i think we've had a significant traction in that space we've been back from the start by

2:24institutional investors so i think unlike you know other companies in the market we didn't start in the retail space we're not a custodian trying to move in the technology space from the start i think one of the differentiators for our company is we really want to be the trusted technology partner for institutions that want to build in this space definitely and starting in 2015 the

2:41crypto space was so small with the market capitalization compared to what it is now and it's really still fairly small compared to even gold and and the stock market right now uh but it's funny you were backed by institutional investors at the beginning but you really didn't start as institutional custody can you can you talk about that pivot and when the

3:02company realized oh we better get into this sure so the company was founded by uh two people for nicoladore who's a core bitcoin developer and uh adrian truckani who's basically a phd in quantitative finance and very early they saw the opportunities in the space and you know tokenization was obviously the big the big picture longer term story that everyone gets excited about

3:23so the initial business in 2015 was focused on tokenization um no obviously it's still not real it's still very nascent business so it's well ahead of his time in 2015 and they realized if you tokenize anything but how are you going to secure those assets so eventually they decided to attack and provide institutional custody because there was nothing in the market

3:40at the time yeah and now there are quite a few different institutional custody platforms it seems the institutional interest in digital assets is growing exponentially throughout 2020 especially in the latter half here i'm seeing it more and more every day and i've researched a little bit into medico's platform silo can you talk about if there's a unique

4:02uh advantages or competitive advantages of the silo digital custody platform across the space sure i think one of the unique propositions is that we are focused on institutional market we really describe silo as a digital asset management solution i mean some some companies in the space say they're hardware-based security others say they're mpc-based security um i think we're

4:26really how you want to deploy this it's up to you so if you want to deploy it in hardware you can do that if you want to deploy an npc all software-based we can do that as well we work with a number of strategic partners like ibm in the market which delivers the highest sort of highest security in the market in terms of hsms or virtually hsms in terms of an on-premise deployment or

4:43cloud and we work in npc space with a company called unbound which is one of the leaders in in research the research space for mpc so we typically partner with the best in the space we've got a strong track record of clients in the space as well and i think the strongest usp in the space is having the right client references and i think that's where we

5:01particularly shine very well definitely and in the institutional space having large clients um and getting in early as well i think those are the smart ones and i i was looking through your platforms and and your partnerships and it seems like you have partnerships all all around but one in particular that i noticed was in switzerland with gazprom bank for this bitcoin trading

5:24services can you talk about your relationships in switzerland and how you're dealing with these bitcoin trading services sure so cashmere bank's a private bank and i think they're an interesting client because they're actually a client of one of our clients so we provide infrastructure to banks but we also provide infrastructure to other infrastructure companies that

5:43provide infrastructure banks now and in the case of this one we one of our investors and one of our partners is a company called avaloq which provides core banking software so basically the foundation that operates the bank systems and they're focused on the private banking market and and uh effectively we've been deeply integrated that solution so if you one of the banks on their

6:02solution the whole private key management silo is a module but it's completely abstracted behind the core banking system gas problem was their first client that they deployed the solution to they've got number they've got 150 clients uh banking clients worldwide so any one of those clients have a turnkey solution um so that was their first client but we

6:19worked with a number of other banks in the space as well so we're strong in switzerland as with clients such as that but any jurisdiction where you see the regulators supporting banks to move germany we work with forces stuttgart we're the lead the leading regular digital exchange in europe uh in singapore we're extended charter bank um and just today where it

6:36was announced that northern trust is also going to use our infrastructure so the banking space for us is really a very strong strong area that's great and congratulations on that on those new partnerships and now i i want to get your perspective on you know high level of growing institutional interest in in bitcoin in the digital asset space throughout this year and i'm sure it's

6:55reflected in your customer base continuing to grow as well you know how do you see the space even from when you joined until now and then into you know in the next 12 months well i mean i think i would describe more broadly that i think the whole blockchain space is going through what i would describe as the traditional hype cycle we see they call the

7:15gardner-hype cycle basically but you have the whole boom boom bust stage 2017 and the 2018 the collapse obviously that was the boom and the bust that was very retail driven but i think it started in motion and funded a lot of projects that whole boom has a has a point same way we saw the internet confirmed in in late late you know just before 2000 the railroads got funded in the us

7:35a lot of those initial companies went bust but a lot of investment were in this space and i think what we've seen since 2018 is a lot of institutional stealth deals a lot of visionaries that basically decided to invest in space think think about fidelity as i mentioned avalock one of our investors also decided long before was commercially viable to get involved in the crypto space

7:53and those institutions basically were the pioneers and now i think we've come out of that there's been sustainable investment by a number of large institutions that we're seeing mainstream institutions jp morgan is a good example so in in 20 as you know basically in 2017 jp morgan uh jp morgan's jamie dimon described bitcoin as a bubble similar to tulips that would

8:13end the tulip bubble that would end in tears and just one month ago they set up they launched a new division entirely focused on blockchain commercializing blockchain including the jpmorgan coin and 100 employees and it's almost profitable so i think you've seen a full about face in the institutional sector you're seeing as i mentioned northern trust announced today they're using

8:30their infrastructure all the mainstream legacy firms are realized this is no longer basically a nice to have it's an essential have this strong investor demand from their client base whether that's uh funds uh hedge funds we've seen some of the luminaries in the hedge fund space say they're getting into what involved the bitcoin we see corporates now allocating bitcoin

8:49as a as a as a treasury asset that was the same micro strategy with michael saylor i think this is a broadening movement still early as you said bitcoin's still a 350 350 billion dollar asset but i think we're moving into a virtual cycle that as more investment comes in the size of the market grows and it becomes too large to ignore i think that's the dramatic change so it's

9:09a very positive reflexive cycle we're moving into now definitely i think we're nearing that that pivot point where a lot of institutions are seeing these billionaires that took the early step ahead and said that you need to have this as a diversification tool at least in your platform at least considering it and some of them even going as far as saying

9:28it's irresponsible if you don't even consider it right so it's in at a very interesting pivot point and now with the institutional interest coming into the space that obviously is going to help with the regulatory environment pushing it forward faster can you talk about the regulatory hurdles that your team is working with and how you see the space right now

9:50and how quickly it's progressing towards uh having more mainstream adoption with more regulatory environment that's stable sure i mean i think there's been some leading jurisdictions that drive in kind of the regulatory um the regulations in this space switzerland's one of them the regulator here is called finma we've seen the same thing in singapore mas

10:11and i think those globally to the leaders and i think others other regulators have taken notice this is something that is not going away it's something that is here is long term and it has a number of basically strong propositions for the financial sector there's a lot of efficiencies you get from dlt i think blockchain really can revolutionize the way we think about

10:27capital markets um and obviously bitcoin is investment vehicle is growing statute so i think what you're seeing regulatory let's say hurdles or barriers dropping everywhere i think you see more definition the tax economy about this asset class and i think regulators are supporting it i think there's always some concerns that regulators have banned it or that

10:46was kind of a narrative we used to hear but it's not the case and i think if anything this is moving from a regulatory perspective into a mainstream asset and as it gets regulated that enables institutions to come into the market so it's a very positive thing globally i think yeah i agree sheamus and speaking of the regulatory environment there's also medical is also

11:05working in part with in the central bank digital currency cbdc space which is very exciting and a lot of people are interested to see how that's going to play out in their countries can you talk about how medico is working in that space right now sure well i mean i think this is a space that you know central banks move in very long-term cycles historically you're

11:24talking about 10 20-year planning cycles the launch of libra now called dm really basically focused that sector that they needed to respond it was the first time basically a it's a non-sovereign had a much larger population i mean two and a half billion people use basically facebook products so this really accelerated the planning um around and experimentation in that

11:44space and we work a number two of our investors are some of the main suppliers to central banks in the traditional space one of our investors is called sikba they're a company based in switzerland just near us which produces the inks for most central banks uh paper money and our we did another fundraising in july this year and that was led by a company a german

12:04company called gaseki and of riot and they also provide uh services to central banks for example in the case of germany they they print the bank notes for the bonus bank using the inks from sigma so we have two the two let's say four or five largest suppliers central banks um gaseki endeavoring has a has a cbdc solution called philia so i can't go into specific details but i think

12:27given the prominence of our partners in the space and given that we have solutions that have historically been very much focused on the commercial banking market there's a lot of synergies going helping the central bank on the issuance side and then working with the commercial banking sectors that need to support this asset this new digital currencies definitely

12:43and all of the it seems like it's really piqued uh the interest of almost every nation that you know they need to start working on this technology do you see it as you know i know their their cycles are much longer and they take time to make decisions but do you see it with from their perspective as sort of a race where you know they will maybe will fall behind if they take too

13:09long um and i'm guessing that you know the european countries that some of them may be able to move a lot faster than in north america to change the financial environment through the central bank well i mentioned libra but i i definitely think there's some geopolitical element to how fast the central banks are thinking about addressing this or nation states are

13:29thinking about interestingness china has launched their their currency they're experimenting fast and i think you know covet has really changed the narrative around the need for these things do many in many respects we already work with digital currencies i mean many of us use credit cards i mean in the east in uh in asia basically having an electronic wallet attached to your phone

13:49is pretty much the norm people don't carry cash and kovitz only made that much more dramatic i haven't really used cash since march last year or march this year so um i think it's not so much acceptance in the retail side it's as you said basically the planning cycles have been typically quite long on the on the central bank side but there's a lot of cost savings to be

14:06had by getting rid of cash it's a very expensive thing to produce and i think what they realize when you're trying to basically reach out and have monetary policy to resolve crises like we've seen in the us this year globally with covet the idea of a programmable digital money where you can send money directly to those that need it basically you don't have this wastage so you can

14:24send it to a restaurant in whatever city you can send it to a specific specific sector of the population a specific geography and you can basically make sure it gets to the right place this i think is we've had a year where we see use cases this would have been absolutely the right tool to have the time so i i definitely think this is coming sooner than people think probably the

14:44next five years in some countries i think definitely lit a fire uh and you know in their hearts with uh with covet acceleration and cash seem to be in shortages um so definitely excited to see how that plays out and and and which countries will make the first move um so we're we're nearing the end of the interview sheamus but i want to talk about the future of medico

15:07what are your team's plans moving into 2021 and what are your main focuses sure i mean up to now we've really focused on large tier 1 tier 2 banks those that can manage the technology themselves and our solution has been what we call an on-premise solution so we sell the tech stack to a bank and they manage it what we realize is there's a lot of complexity in this space not everybody

15:28wants to manage technology i think there's a broad trend to move everything to the cloud to externalize a lot of the tech stack in banks and financial institutions and we've responded to that and the q1 will launch a full sas solution so the clients will have the option to basically have an on-prem solution or they can work with us and just manage the

15:44private keys so i think this really enables us to address the entire market work with fintechs work with smaller banks work with corporates because effectively as corporates get into space they'll need solutions as well so for us we're really moving to a new phase much larger addressable market i think with acceleration of the underlying market it's really about scaling

16:00we've got a great product market fit but great client references it's really this year's about executing and really building a global brand yeah i think 2021's really going to take off and and hopefully that reflects in medico's growth as well and so how can viewers learn more about medico and follow along as you continue to grow well obviously mitako.com website uh i'm

16:22on linkedin uh twitter feel free to reach out um for example we we also have a bi-weekly webinar called taco talks look it up join us uh we will take live questions feel free when we we have a we're happy to reach out and connect with anybody that wants to learn more or look at potential partners partnerships clients synergies etc love to hear from everybody thanks

16:44shamus i will leave those links in the description box below for the viewers thank you all the best on the business moving forward and let's follow up in the near future thanks ashton been great to be here