Blockchain and cryptocurrencies have been around for a little bit more than a decade, but compared to the insituationals companies they are still in their infancy. But as blockchain and crypto grows, more and more institutional players are joining the fields. You know things are getting serious when one of the oldest ventures joins the game supporting ventures that disrupt the way we invest and work in. When did they realise that they would no longer turn a blind eye to these disruption? What made them join forces and build infrastructure on it? Will this pave the way for more institution to join in? Get all these answers and much more on the latest episode of Word on the Block where we are join by Alex Mansion of Standard Charted Ventures.
Angie Lau: There is no escaping the fact that blockchain technology is transforming the world of money, one protocol at a time. But how are traditional finance giants getting into the game? You know things are getting serious when institutions, including those that have been around since the 19th century, are starting to back ventures that are disrupting how we invest and work in the 21st century. And that's what one global institution is doing, one venture deal at a time. And today we sit down with a veteran leading the charge.
Welcome to Word on the Block, the series that takes a deeper dive into blockchain and all the emerging technologies that shape our world at the intersection of business, politics and economy. It's what we cover right here on Forkast.News. I'm Forkast Editor-in-Chief, Angie Lau.
And today I'm excited to tell you we are in conversation with Alex Manson, who heads SC Ventures at Standard Chartered to lead innovation in entrepreneurship at the bank, and also looks to invest in fintech companies that is changing the way banking will be done. Alex, it's great to have you on the show.
Alex Manson: Thank you, Angie. Thanks for having me.
Angie Lau: All right. So Standard Chartered, this is one of the world's oldest legacy banks. I think it was back in the 1860s, where it was the merger of two older banks back in the UK. And here we are.
Alex Manson: You're absolutely right. It obtained a charter from Queen Victoria in 1853 and established the first branch in Calcutta, followed by China and merged with another bank in Africa, which was established in 1862, started with ship, gold, diamonds and Southern Africa, generally speaking.
Angie Lau: From what we traditionally know as commodities now evolving into this 21st century. And so how do you think about crypto? How do you think about these new digital assets that are available because of blockchain?
Alex Manson: Let's see. We just talked about the discovery of new assets and years of legacy, which makes it a great platform in terms of operating in a number of parts of the world where it's sometimes difficult to operate as a separate matter. But this is where we are. And yet the conviction we started SC Ventures with is that financial services and banks in particular, we're going to have to do a better job of fulfilling societal expectations of them. Meaning serving clients the way they need to be served, the way they want to be served, and moving into the future, to not just cope with the future and technological disruption, but really thrive in it.
So blockchain digital assets is a subset of that conviction. I think of blockchain as a foundational technology for a lot of different things, which will become very seamless over time. And we think of digital assets as a new asset class, which is just here to stay and will become an integral part of our lives. And therefore we have a very important job to do in terms of enabling it and building and maintaining the infrastructure for it.
Angie Lau: When was that realization, that aha moment where it was a recognition that this is disruptive and it could disrupt us, so either ignore it at our peril or figure it out? When was that moment?
Alex Manson: So I'll get back to the question about when. But I would just note that 'disruptive' has a negative connotation to it, meaning it's bad for you. And my instinct in the context of banking is actually quite the opposite. It's very, very good.
So I was running one of the business units of the bank, the transaction bank. And at this point we were running a nice, stable business, so I thought, but unsustainable in many ways and had to be reinvented anyways. And that's where we as a group of professionals just became exposed to the so-called technological disruption with blockchain emerging as well as data science and a number of other trends. And so we started applying these things within the bank. We did a proof of concept. We engage with fintechs. We really became intellectually curious about it, and also came to the conclusion that changing the bank just from within the bank was going to be really difficult.
So we acquired the conviction that in order to transform banking - our bank, but generally speaking banking - we're going to have to do a combination of doing work inside the financial institutions, but also outside, and build ventures with business models that are fundamentally different from the business models of conventional organizations. And so this is how the idea for SC Ventures was born, setting up independent business models and beginning to get serious about it.
Angie Lau: I get that, I think a lot of people get that, that sometimes when you are so close to the issue at hand or the business at hand or the model at hand, you can't see beyond what's staring you. How did that evolution take place internally in accepting that crypto and digital assets and blockchain was something that you wanted to engage in?
Alex Manson: I think the quick answer, the simple answer to your question is it's about clients. It's about clients and listening to clients and listening to their needs and listening to what society generally speaking, but specifically the people you're involved with, all your stakeholders are telling you. Banks, historically, have been pioneering, have been audacious. They take risks. We were reflecting on the legacy of Standard Chartered from in the 1800s and building economies and supporting development, etc. It's the DNA of banking.
However, following the Financial Crisis, where a lot of financial institutions kind of lost lots of plot, it was an element of remediation. It was an element of reviewing the way we conduct business, which was really important, and frankly, we wouldn't have a right to exist if it weren't for that. There was an element of becoming accordingly very risk averse and process oriented and internally focused, and perhaps paying less attention to what stakeholders, clients specifically are telling us.
So listen to clients, they were telling us things they'd like us to do for them. Clients were asking us about digital assets. This is an emerging asset class. What are the possibilities? What could we do with them? By the way, institutional clients, can we can we trade them? Can we keep that? And there was just an element of being aware of these requests and needs, the emerging needs of their real needs already, and trying to address them. So that is the basis of banking, frankly, any service business, generally speaking.
Angie Lau: You're based in Singapore very specifically. Does that have something to do with some of the directives from MAS, Monetary Authority of Singapore, the de facto central bank, some of the initiatives that they're doing in the crypto space?
Alex Manson: In many ways where we're headquartered in the UK, we think of Singapore as an operational headquarter as well, if you will. And we have constant dialogs with the MAS as well as a number of other regulators. But we weren't specifically driven by any regulatory regime in terms of setting up SC Ventures and the ventures that we had. In fact, reflecting on digital assets specifically, we incubated these ventures in Singapore and moved them later to London, not for regulatory reasons, but in order to be closer to the clients which we wanted to service, as we were focusing on the institutional space, at least initially.
Generally speaking, I would also add that all regulators around the planet are learning dealing with the subject. And by 'learning', I don't mean this in a condescending way at all, because we are all learning. We are all sort of discovering new things as literally as we speak, and a number of frameworks are emerging and I expect they will converge over time and that will have pretty consistent regulatory regimes around the world for a new asset class and the way to operate it.
Angie Lau: Well, two very interesting hot spots, almost. Singapore, Asia being one, obviously, but London increasingly with its deep interests in the digital asset space and wanting to really create an environment that supports those innovations. When you look at SC Ventures and you look out into this environment, how do you think about the joint ventures that you have? I note that you just collaborated with BC Group in the digital assets and blockchain space with Zodia Markets. Is this an international play?
Alex Manson: So two things. First, where are the ventures which we're building? We are headquartered in Singapore, but the ventures are all across our footprint. So the question I'd ask myself is do we have a competitive advantage that we have the right to win, and does our DNA play a role in this, how to do this? And that's a competitive advantage that outweighs the cost of perhaps never taking a shortcut, because we're backed by a regulated financial institution. And that's a positive differentiation in my mind. So the ventures accordingly are a little everywhere.
So joint ventures and the partners back to point of principle is there's virtually nothing we really want to do by ourselves. Everything is in partnership. When we initiate a venture, we may own 100% on day one, but sooner rather than later, we are going to want to have partners in it to help us scale it, bring additional expertise, validate the commercial proposition, validate the financial proposition as investors. So we want partners one way or another. And pretty much all the ventures we incubated at some point welcome partners. So Zodia Custody, which is the other one in the digital asset space, welcomed Northern Trust. And Northern Trust is our joint venture partner in this venture at the moment. So the custody is now registered with the FCA also in Ireland, so Europe, and is operating.
And in the case of Zodia Markets, you're right. We partnered with BC Group in Hong Kong which is again a partner we've been in touch with for a long time. And generally speaking, we will want partners in any event. And generally speaking, we're just very, very open to engaging partnerships. And every dialog is worth having. And if something comes out of it, and ideally we can add more value being two or three or four partners as opposed to just ourselves, then that's the objective.
Angie Lau: The objective is a big one. The goals are great. The question is, will this pave the way for more institutional dollars coming in? And what about data privacy? And the question is, you're creating these really new rails and these new platforms to create - in your words - value for the client. Does that mean we're going to see more institutional clients come into the space? Are those dollars ready to be invested into crypto, into blockchain, into Web3?
Alex Manson: So, it's a super important point and I think you're putting your finger on our investment thesis when it comes to digital assets ventures specifically. And the thesis is that, one, digital assets are here to stay. I'm not saying Bitcoin's going up or down, doesn't really matter. I'm not even saying that Bitcoin is here to stay. I think it is, but it kind of doesn't matter. All I'm saying is digital assets are here to stay.
The second point is that therefore, institutional adoption is inevitable. However, for institutional adoption to occur, the infrastructure has to be at institutional grade. And this isn't the case today. This isn't the case today. So when we first wanted to explore the asset class and trade it, the first question we asked ourselves is so, 'Where do we put it?' Severe real question, 'Where do I put the bitcoins, the keys?' And we looked around and found a number of startups, some of them very well funded, but they are still startups, and importantly, without the operating experience and the governance framework of an institutional custodian.
So we parked the idea of trading and started building a custodian at institutional or bank grade, which is Zodia Custody on the back of which Zodia Markets is a brokerage and exchange platform, again targeted to the institutional market. So go back to your question, not only does it pave the way for it, it is a necessary condition for institutional adoption. We are absolutely sure that institutional adoption is inevitable, but somebody has to build a robust, safe, compliant infrastructure for it. That's exactly what we do.
Angie Lau: When you say institutional grade, what is missing? And I understand the custody space, but the compliance space remains so complex because the regulatory and policy space remains evolving. It's ever changing.
Alex Manson: Sure. And that is the case in financial markets, generally speaking. And all financial institutions have to adapt to an evolving regulatory environment. That's the story of our lives. So, for example, what I call segregation of church and state, the exchange shouldn't be the same as the custodian, shouldn't be the same as the settlement agent. In the retail digital asset market today, this is amalgamated. The same firm do it all together, that's a big no no for institutions, just as an example. Just just managing keys in hardware security modules is, by the way, easier said than done and very important.
But there's other things. How about white labeling, how about implementation of travel rules, how about all the things that you would expect in terms of conventional securities? And then there's more because we're in digital assets, but the principles of institutional business, it would be custody or brokerage and trading have to apply for institutions to ultimately pour into the sector, which they will.
Angie Lau: Yeah. And look, it's new space, and to your point about, in the retail crypto exchange market, a lot of these things are conflated in the same space. And then there's a hack. And then there's risk mitigation that that could have been had but wasn't applied. How do you think about user protection? How do you think about it in the age of digital privacy, user protection, data protection? You don't want this in the wrong hands or the wrong people.
Alex Manson: For example, in the metaverse, how we protect our identity in the context of Web3. And at some point we will protect our avatars, perhaps even better than we want to protect ourselves. But before we get there, you call that Avatar Singularity, if you will. But before we even get there, an element of controlling identity is absolutely, absolutely important.
Look, banks historically are here about trust. You trust them with your money. Your money is pretty important. It can become very emotional. And so we used to put it in the vault and then it became more virtual, more digital. We are rediscovering vaults, by the way, in the context of digital assets, because there's a key that has to be physically somewhere. It's called the hardware security module. But that aside, you're trusting us with important things and we have to take good care of them.
And I think the future of financial institutions is in part to sort of diversify from just money to data and be the right custodian for data. And here I think we have not only a right to play, but a duty to really get it right. Apply that DNA of operating in a hyper regulated environment and so forth, and keep customers data not only safe but really ensure that they never get broken into, and also put them to good use, which is what people will expect from us. Over time, if you trust me with your money and financial data, maybe you will trust financial institutions with other data around health, for example, or identity, as we just discussed. And that is potentially the role that financial institutions can play. It is another area where we apply the same standards and rules as a regulator or organization.
And I do think this is a differentiation versus fintech or tech new entrants who are very capable on a number of things, and we partner with them all the time but may not know what they don't know in the context of regulations. And that's important too.
Angie Lau: I'm so intrigued by this concept, and I want to dive deeper into this that you raised, which is if the future is about digital assets, today we define this as the digital version of money. But if our data itself becomes a future commodity, what is really the definition of a bank in the future? Hang on to that thought. We're going to take a break and we'll be back in just a moment.
You said something really interesting, which was in the future, if you are in the custodian business of digital assets and some of the valued things could be our health information, our consumer behavior, all of the things that are being monetized, whether we like it or not right now in the Web2 world. The Web3 world really allows us as individuals to seize that power back using blockchain and decentralized technologies to actually monetize that for ourselves. How in that future do you define a bank?
Alex Manson: Banks are institutions relying to some extent on trust and therefore with the job of preservation, originally wealth preservation, as well as growing wealth and supporting growth. So the question is what form does it take in the context of Web3 and digital assets? But if we go back to the basics of what I've just said, in my mind, it's about banks setting themselves up to be able to fulfill these functions. So keeping data and keeping data safe and using it for good purpose is an integral part of growing wealth or enabling growth.
Over time, When people seize control back, as you said, of their identity and destiny in Web3, I would have thought that the transactions within Web3 are going to be quite central to the architecture. So the way we pay money to each other, the way we finance each other, the way we protect ourselves, etc., is going to be quite central. And so I would expect finance to be a very central theme in Web3, perhaps unlike Web2, where we notably and proverbially sort of forgot money on the Internet at inception, very unlikely to happen in the context of the next generation in Web3. So building infrastructure, operating this infrastructure I think is a critical element of what banks would be expected to do by Web3 users and society at large.
Angie Lau: You've already invested in Ripple. We know Ripple in METACO which provides security critical digital asset infra. What's next on the acquisition list? When you build out the infrastructure and the architecture, what else is on that shopping list?
Alex Manson: So maybe a generic point first, which is we're building an ecosystem. The conviction here is that ecosystems with today's technology are more powerful than buying and integrating. Ecosystem is an API plug. I can plug a capability into a platform or the other way around. It's very quick, it's very nimble. Whereas just buying things, integrating them as a whole is clunkier and has integration risks with it. So building ecosystems is the way to go.
And so the various ventures we're building will form an ecosystem. Obviously there's a connectivity between Zodia Custody and Zodia Markets because they're in the digital assets business fulfilling very different roles, but they can plug into each other. METACO is a critical technology vendor to Zodia, and so we took a stake in it and they're great partners in doing a great job as a separate matter. So that's their part of our ecosystem.
So other investments we're making. In terms of predicting what we'll do next in that ecosystem, what are we missing, settlements is going to be pretty important. Tokenization of assets is going to be pretty important. We will tokenize securities, almost certainly. We will tokenize real assets, certainly. But we'll do all these things in the context of a broader ecosystem of serving the digital asset economy as a general matter.
Angie Lau: And so it goes back to do you care that it's crypto winter right now? Do your clients care it's crypto winter right now?
Alex Manson: So first, do I care? Yes. Because I look at the market and I'm very sorry that a number of people got very hurt. And my observation being an element which I hope doesn't sound like schadenfreude, but I could have told you that. But also, no asset class ever goes up forever. That doesn't exist. Asset classes, in order to be asset classes, have to go up and down. And the fact that we have or are going through a winter now and digital assets obviously are still here.
And by the way, there's been bubbles and burst before. So that we've gone through a few cycles in the context of cryptocurrency specifically is a sign of resilience and a sign that the asset class is actually here to stay. So from an institutional perspective, it's actually encouraging and a good thing.
Angie Lau: Well, the ideas are here, the innovation is here. And increasingly to see more traditional finance taking really a very specific view with a lot of conviction on building a future ecosystem that is based on decentralized blockchain technology or any version in between, that alone is a huge signal for the maturity and the maturing aspects of this space. Alex, it was great to hear all of it from you. It was a pleasure talking to you today.
Alex Manson: Thank you. Angie. Thank you. That was great. I appreciate it.
Angie Lau: And I want to thank you everyone, for joining us on this latest episode of Word on the Block. I'm Angie Lau, Forkast Editor-in-Chief. Until the next time.