Uphold launches Vault for hybrid custody and cold storage

0:01I'm Ashton Addison from the Crypto Coin Show, and today on Blockchain Interviews with Simon McLaughlin, CEO of Uphold. Simon, welcome to the show and thank you for taking the time. Ashton, great to meet you and thanks for inviting me on. You're very welcome. Excited to dive into Uphold. I know there's some big announcements to make and you guys are everywhere and connected into

0:22everywhere. So, I'm excited to just hear a little bit about the deeper inner workings of Uphold. But first, before we start, I'd love to hear a little bit on yourself, just a bit on your background, how you got to this point as well, and then we'll dive into all the latest crypto details. Sure. Well, I've been in finance for about 20 years. Came to Bitcoin in 2017

0:44and I came through an interesting route. I I literally picked up a book in Union Square in New York, where I was living at the time, and I was having horrible problems getting money from my UK bank account to my US bank account. Something you'd think is so basic. Slow, expensive, error-prone, you know. And anyway, I read this book about Bitcoin and I said, "I have to go and

1:04work in that industry." So, I applied to a bunch of companies and I I I I got into Uphold. Before that, I set up a broker-dealer in New York and prior to that, I sort of I was at LexisNexis, where we did a lot of technology for risk and and compliance. Very cool. And I know Uphold is, you know, I believe you guys are in the US right now, but you guys are really

1:27branching out everywhere globally. Maybe you can just talk about just Uphold, the scope of of where you guys are servicing and what exactly are the best functions that people are using most in Uphold? Sure. Well, most people know us because of our retail app, but Uphold is actually a web three financial platform. So, we help people, companies, institutional investors move from fiat

1:49currency into cryptocurrency and across different blockchains. Our architecture is unique. We're We up as a prime broker. We're connected to 30 underlying liquidity venues including centralized exchanges, decentralized exchanges. And the advantage of that model is we're listening for the best pricing in the market. We're offering some of the deepest liquidity because we

2:10can sell into all of those venues. We can move large quantities in and out of the market. Um going forward increasingly we're playing a we're playing a a role as an infrastructure provider to anybody building on blockchain or anybody wanting to participate in web three and DeFi. Um so that will form a more and more important part of our, you know, our

2:33plan. Mhm. That's great to hear and as DeFi continues to grow and exchanges switch up over the cycles, you know, some new ones pop up and all of a sudden there's there's huge liquidity there to tap into, but also there's the rise of decentralized exchanges and other self-custodial tools as well. Uh how tapped in are you guys into the ever-evolving market and when new

3:00partners come on the block? Uh yeah, we wanted to really carefully and you know, part of our role is we we want to expose some of the more uh important features of DeFi and crypto-native features to a mainstream audience. So we're about to launch Vault for example that's designed to make self-custody easy and practical for the average user. Mhm. Yeah, I know what that's a huge

3:24announcement that I I saw just happened. Maybe you can talk about the importance of the custody and what exactly Vault does and how it's helping the users. Sure. I mean I would argue that the biggest problem in crypto is that holding assets on chain for the average person is actually really difficult. It's not a practical proposition for the average user. Crypto will never go

3:48mainstream until, you know, that feature is made a practical and viable proposition. So, post FTX, you know, we had a lot of feedback from customers that they wanted more custody options. So, today we offer a fully custodial solution in the Uphold app. We offer a full self-custody wallet in in the form of Uphold. And we are we're just about to launch on

4:12November the 29th, Uphold Vault. And in simple terms, Uphold Uphold Vault basically creates a much more user-friendly form of self-custody. Why? Because number one, it's embedded into the Uphold app itself. It allows you to set up a self-custody wallet within the app, but you don't need the app to move your funds in in your vault. It works on a multi-sig

4:39basis, so there are three keys. You, the user, hold two. We only hold one. And you, the user, you know, to move funds, you only need two keys. So, you're fully in in in control of your assets. You can move them without any recourse or dependence on us. If the Uphold app is down or God forbid, the Uphold business goes away, you're fully in control of

5:03your assets. You can move them. It offers key recovery as well. I mean, as you know, one of the horrible features of of self-custody is if you lose your private key, you lose your money. That's not great for the average user, so Uphold Vault allows you, if you lose one of your key keys, you can apply to Uphold or it's in actually in the app. It's fully

5:25automated. You can create a new key to replace your lost key. And that's done by not because we hold a copy of your key or anything like that. It's just that we put our key together with your remaining key. That creates a condition that allows a new key to be created. So, you know, for the average user, it's a very practical and sensible way of striking a balance between security

5:50and convenience. Interesting. Yeah, because there's always been a huge contrast between do I store it on the exchange in in full custody of third party or do I keep it with myself and both of them have risks and it's about finding that balance of how can we store it ourself but also have that fail proof part where yeah, if I lose the keys or my house burns down

6:16or something then I do have access to the funds. It's super interesting because also the multi-sig part in the past multi-sigs were normally used for you know, companies that had billions of dollars or and because they were complex but I'm guessing that it's become a lot easier now. It has. When you think about multi-sig, I mean it's built into the infrastructure of of most of the big

6:40blockchains and you know, it's battle hardened technology. Bitcoin is built into the infrastructure, Ethereum is built into the infrastructure, XRP built into the infrastructure. You know, and it's protected tens of billions of dollars of assets on chain. And multi-sig only goes wrong really if it's not properly implemented. If it's implemented in a native form and there's

7:05proper key separation, it's battle hardened proven technology. We considered going the MPC route for for vault and we decided against it ultimately because it didn't meet our design goals. Our design goals were principally number one, survivability. So no no matter what happens to us as a vendor, you can still move your funds. If you go the MPC route, you need heavy

7:30server-side infrastructure that means if the vendor goes away, are you really going to be able to move your assets? And secondly, MPC is is relatively new technology. Lots of interesting things in it but we want we wanted to go with the battle proven technology that's proven that that's protected tens of billions of dollars on chain successfully. If you look if

7:51you look at I think it's I think on Bitcoin there's a there's a wallet for Binance. There's 9 billion dollars in that wallet successfully protected through multi-sig technology. That's great to know. And with this vault function with Uphold are you able to store your whole portfolio or specific coins? How exactly is that starting out? So a really important concept a benefit

8:16of vault is going to be that it's multi-chain. So with one with one seed phrase with one set of keys, you're going to be able to control assets on multiple chains through one wallet. As you know today on different chains, you need different wallets. That's massively inconvenient for people. And so again, it's about the balance of convenience and security. We're going to

8:36start with XRP. So you'll be able to store your XRP through through vault from day one. Early next year, we're going to add Bitcoin and Ethereum. So it'll build up into one wallet that serves multiple chains. Very interesting. And yeah, when you have multiple wallets each of them normally in the past would have to have a seed phrase and and then all of a sudden you're managing you

9:00know, now that that there's so many blockchains, it's like you're managing 10 different private keys and now there's 10 chances to lose your wallet instead of one. Um Life gets very very complicated if you try to self-custody across multiple chains today. And and vault just makes it very easy, very convenient, very secure. Yeah. And that's very interesting that

9:21XRP is coming in as the first currency. I've seen you know, XRP and and Uphold before. What's the rationale behind you know, before a Bitcoin even XRP holders are the first ones to get to use this new technology? Uh well, as you know, uh we have a very close relationship with the XRP community. We were the only trading venue that continued to support

9:47it over the past few years during the SEC action. So, we've got a very large community who are loyal to uphold, and we want to basically go where our users are. So, initially, we want to serve the XRP community. More broadly, I think we've always had a we've always had a predilection for blockchains that have a very clear use case. An XRP and and the Ripple

10:12and and XRPL, very clear use case, cross-border payments. And we built around that with with with other projects that have a very clear use case, solving problems typically in traditional finance. Uh you know, you can think of Casper with a K. That's another payment-related non-cyclical data, which is which is a super interesting project. We brought

10:38that to market before anybody else. Um XDC, blockchain dedicated to solving the problems of trade finance. So, we like enterprise-related projects run by serious people with very clear use cases. And uh you know, XRP represents a a large number of our users. So, that's a logical place for us to start. Mhm. Mhm, that's great to know. I'll have to

11:05uh load up some more XRP uh before Bitcoin even to to to try out the vault. And and now, when new users come to the platform, is that what they're guided to or are there are there recommended to use the vault-assisted uh self-custody or um is it just like an option and they get to choose? How do you explain, you know, the the difference? Some people come into the

11:27industry and they're like, "Well, I don't really know whether I should be holding it myself or or the exchange or hybrid." Yeah, I mean, we don't tell people how they should hold their hold their funds. We we regard it as it's up to the user. You can choose the fully custodial method through the Uphold app. You can choose assisted self-custody, which is Vault,

11:47or you can choose the full self-custody option where you've just got one key on our portal. Um if you look at our fully custodial model, um it's kind of unique in itself because of the transparency that we offer. We're the only platform that publishes our assets and liabilities every 30 seconds on a public website. So, if you're an Uphold customer, you know that your

12:13funds are with us. You know that they're available to withdraw. And we've been publishing our assets and liabilities every 30 seconds since 2014. So, you you know, way way way before all of the drama with FTX, you know, our mantra has been, "You can trust us because don't trust us because we tell you you can trust us. Trust us because we show you that your

12:37assets are there." And we're you know, we're audited regularly by RSM Robson Rhodes, a major audit firm. And then this commitment to transparency in the in the main Uphold app has seen over the past 18 months every single month except for two, we've seen strong net inflows. Um so, you know, the fully custodial option is unusually transparent, highly secure.

13:04We're the only major platform that's never been hacked. But a lot of people want to use self-custody. And so, we've invented Uphold Vault for if you want a convenient, easy way to self-custody your funds, you have the benefits of your funds are super adjacent to the Uphold platform, so you can pull them back and trade in one click. Um you don't need the Uphold app to move your

13:27funds. You're fully in control of your funds in in in the Uphold vault. Um and you know, there there's survivability, you know, no matter what happens, you're in control because you've got two keys. And if you lose one of them, we can help you generate a new key, which I think for we we surveyed our customers, I think it was I think it was in March, and then the

13:48number one request by far was introduce more custody options. And as a result this year, we've introduced self-custody and we've introduced about to introduce assisted self-custody. Mhm. Mhm. That's great to know. And about the proof of reserves that you mentioned as well, the 2014, that's incredible. I feel like you know, over the years there've been

14:09mishaps with exchanges and and some of them aren't run as efficiently as as you and your team. Um and and now that's become a thing, but I feel like that should have been the standard from the beginning uh is, you know, hey, you know, we're not uh as an exchange this they're not hiding, you know, everything should be on the blockchain. You should be transparent. Um and and that I guess

14:28Absolutely. That's why the people ask for self-custody cuz sometimes they can't trust if there isn't transparency, they they don't know if their funds are being lent out or being spent on, you know, parties and and whatnot. Um so so so it's great to hear about the transparency uh with Uphold. Um yeah. No, absolutely. Uh you know, we we've we've always had a golden rule. We don't

14:53lend out customer money. It's not rehypothecated. It's held one-to-one and we publish it, you know, as I say, every 30 seconds on a public website way back. So, it was very far-sighted. Uphold actually was started uh in 2014 and it was in it was in response to the 2008 to 2010 financial crash where banks were operating as black boxes and you didn't know what risks were being taken with

15:19your money. So, you know, the founders of the company were very far-sighted in we want a completely transparent model where people can see that their funds are in custody and available for withdrawal at all times. And over the past it's interesting that message pre-FTX, that message didn't resonate as much as we would like. Post-FTX, it's become hugely powerful, which is

15:46why we've had you know, positive month monthly inflows for almost 18 months. Mhm. Yeah, and and speaking of inflows, I'm curious because normally exchanges, you know, they they have a tap on the market a little bit about seeing new customers coming in, returning customers, trading volumes increasing. Uh it seems like in in Q3 and Q4 of 2023, there seems to be a bit of a

16:09resurgence of interest from retail as well. Uh I'm curious on, you know, if the numbers have reflected that on uphold and, you know, are you optimistic for uh new entrants coming into the industry moving into 2024 with the other Bitcoin and related cryptocurrency news of getting big? Yeah, we're we're seeing significant inflows. Uh it's interesting I mean, the

16:32market daily trading volumes in the market July to September were pretty poor. They went from 65 billion a day down to 25 billion. We actually didn't feel that impact because you know, this transparency benefit was definitely attracting new customers. Over the past 6 weeks, I think there's been a whole bunch of stuff that's come together. Speculation

16:53about approval of the ETFs, obviously. Um better than expected inflation news. I and I also I was in Dubai last week and uh you know, met the regulators out there. So many regulators now are waking up to the fact that they've got to draw up proper rules of the road for digital assets. That's now becoming a reality in the UK and in Europe. And of course, that's

17:17encouraging institutional investors to adopt in the in the confidence that okay this technology is not going away and you know rules of the road are going to increase adoption not just by institutional investors but also by enterprises. But I think you've got an interesting thing going on at the moment with institutional investors definitely moving into the market

17:35uh in quite significant volume at a time where in the case of Bitcoin I think I think supply is is sort of limited. So you know you're getting a nice It feels like a crypto spring at the moment let's put it like that. Yeah I know it's it seems really great and combining the Bitcoin having event in in April March April of 2024 with

18:02potentially the ETF approval which should open the doors to more people in the traditional markets and and institutional investors. I feel like that side of Uphold's probably going to have a surge and the smart ones are probably thinking ahead and that's why we're seeing the surge sort of right now. I'm curious if it'll continue until then or you know the

18:22waves but it's it sounds like it's been positively affecting you and your team's business. It definitely has. I mean this week I mean Uphold is we we list 280 tokens and we put a vast amount of effort into identifying blockchains and tokens that uh have a clear real world use case serious projects run by serious people. We look at things like tokenomics and

18:51and a whole bunch of stuff to to to sort of a assess their potential for value creation. And we've had a you know because we we're connected to so many different exchanges it means number one we can offer a very broad range of tokens. Number two we can uh introduce people to import potentially important new tokens very early because we're also sourcing DeFi.

19:13So you know, as I as I mentioned earlier, we brought, you know, to to we've been the first major C5 venue to cover things like XDC, the trade finance project, Casper with a K, which is a very promising payments protocol, uh Hedera Hashgraph, another enterprise related token. The altcoin the altcoin market has got some really interesting stuff going on. This week,

19:39as you probably saw, Casper with a K, I think it's up by I can't remember, 30 or 50% but, you know, institution investors are waking up to the fact there's a genuinely potentially revolutionary piece of technology there. Mhm. Yeah, and that's great that Uphold is enabling people to get into things that, you know, sometimes uh retail investors, you know, they had

20:03to wait until normally some of the other exchanges like Binance or Coinbase, they they wouldn't list they wouldn't list things that could very well be the next Microsoft or or Amazon. Uh but, you know, it's it's already sort of very saturated in the market by the time it gets listed there. Um and it's a balance between making making sure something is legitimate and being

20:26and making it available as early as possible that for projects that are legitimate to for investors to to speculate or to invest in to something like this. Absolutely. Yeah. Yeah. Very cool. Well, Simon, I really appreciate you coming on and congratulations on the launch of the vault. I feel like that's a very important topic for people to to understand and discuss about

20:51self-custody or assisted self-custody in this case. Um and I feel like that's a perfect balance of, you know, hey, we need the exchange but we also want to trust ourselves with the keys and if we can use that help, uh then I think it's a it's a great combination. So, thank you for for bringing that into the industry. It's a pleasure. No, great Ashton. I I

21:11hope you'll join our test group and let let us know what you think. Definitely. Well, thank you so much. I will leave the links to uh the information on the vault and just Uphold in general in the show notes below. I appreciate you coming on. All the best with everything moving forward in Uphold and in the industry and let's follow up in the near future.

21:29Super. Thanks a lot, Ashton. Take care.