Digital Banks are Going to Disrupt the Digital Assets Industry

Ishan Pandey: Hi Oliver, welcome to our series “Behind the Startup.” Please tell us about yourself and the story behind SEBA Bank?

Oliver Deak: As the CTO of SEBA Bank, I am responsible for developing the technology to bridge the world of traditional finance to that of digital assets.

Essentially, SEBA Bank was established to provide a holistic digital asset banking service for institutions.

The digital assets sector has matured significantly in recent years and adoption by institutions is accelerating rapidly.

SEBA Bank operates as a FINMA regulated and trusted counterparty to these institutions enabling them to capitalise on the opportunities offered by digital assets easily and securely.

Before joining SEBA Bank, I worked at UBS, joining them as a Senior Java Developer after working as a developer at Swisscom. I proceeded to take on more responsibility at UBS as their FX Order Management Technical Lead and subsequently as the Head of FX Orders and Shared Services Director.

After taking a career sabbatical for four months to learn about Blockchain technology, cryptocurrencies and AI, I became extremely interested in the vision and mission of SEBA Bank and joined as a Senior Software Architect in 2018.

Ishan Pandey: Please tell us about how banks navigate the blockchain industry and bridge the gap between the digital economy and traditional banking?

Oliver Deak: In my experience, many traditional institutional actors, including banks, pension funds, hedge funds, and independent asset managers, are looking to navigate the digital assets industry by using fully regulated services and offering institutional grade quality.

The vision behind a blockchain-based bank is to address precisely that need in the form of a full suite of digital banking services.

Our service offering is comprehensive, institutional-grade, and fully integrated, making it the ideal option for traditional financial institutions to incorporate digital assets into their operations.

Ishan Pandey: In the crypto industry, the reality is that private keys that enable access to digital assets must be physically secured if they are to be held safely.

How are institutions and custodians handling large crypto transactions and what are the best practices regarding safeguarding digital assets?

Oliver Deak: That is exactly right. This is why the blockchain-based bank’s regulated digital custody services meet the highest global security standards. The blockchain-based bank offers institutional-grade Hardware Security Module (HSM) key management technology to securely protect client keys.

Our proprietary “cold storage” custody solution uses a hardware wallet secured off-line in our custom-built, radiofrequency shielded “Faraday Cage” vault protected by multiple biometric access controls for ultimate security.

In addition, we also provide a range of digital custody solutions tailored to different customer needs for both fast availability and offline safekeeping. Beyond storage, best practices regarding the safeguarding of digital assets extend to monitoring and adapting to the development of digital assets and processing crypto corporate actions.

Ishan Pandey: The idea of decentralised finance is now being recognised as a critical shift in the way financial markets operate. In what ways will DeFi affect CeFi and what are your views on the regulations regarding DeFi?

Oliver Deak: DeFi can be described as a decentralised way of producing financial products with processes managed by smart contracts (instead of intermediaries) on a ledger during the entire life-cycle. DeFi handles deposits, loans, investments, all managed on blockchain ledgers via smart contracts.

DeFi, despite the explosive growth in space in the past 18 months, is still in its infancy.

DeFi differs from CeFi in that it can provide benefits in numerous areas, from improving the availability and inclusiveness of financial services, to delivering services more efficiently through disintermediation and complete digitisation, providing low entry and operating costs for users and expanding the possibilities of crypto-assets and their scope, thereby consolidating their role as a new asset class.

While regulating DeFi can be seen as a significant challenge for regulators, as evidenced in the US by the recent approach of the Commissioner of the Securities and Exchange Commission (SEC), Gary Gensler, when regulators adopt an innovative and transparent approach to DeFi, as has been the case in Europe, it results in better outcomes for all.

For example, the European Commission’s approach is focused on improving the harmonisation and legitimisation of how tokens are regulated through the Markets in Crypto-Assets Regulation (MiCA) proposal.

In Switzerland, the approach has been historically very progressive and welcoming to DeFi - This approach has enabled our exponential growth and helped us achieve our FINMA license.

Ishan Pandey: Blockchain technology garners tremendous possibilities for global economic reform and the paradigm shift within the industry is very evident. In what ways has blockchain revamped the global economy and what new avenues can blockchain open up for the finance sector?

There is a litany of possibilities for blockchain to transform the financial industry.

We are already beginning to see the impact of the development of some of these technologies on financial incumbents, with payments an immediate area that is already generating traction--earlier this year, PayPal launched a feature to enable checkout payments for customers in cryptocurrencies.

As mentioned, DeFi is still very much a nascent industry, and we see significant benefits for the financial services industry in the long term as it matures further.

Central Bank Digital Currencies (CBDCs) are another area where we see a new paradigm shift emerging for a variety of stakeholders in the financial system.

While the precise implementations of CBDC may differ across jurisdictions, depending on whether governments choose to implement wholesale or retail CBDCs--we see both types of CBDCs offering benefits to both banks, monetary authorities and citizens.

Our experience in working with central banks such as the Banque de France on CBDC testing provides us with a special understanding of how such systems can be successfully implemented.

Protecting citizens’ privacy in the development of such systems is one of the core challenges we are addressing in our work on CBDCs.

Our recent joint proposal with Xfers for the Monetary Authority of Singapore (MAS) global CBDC competition addressed this exact concern and was selected by MAS as a finalist in their competition.

Ishan Pandey: With the collapse of Bitcoin after Tesla suddenly backed out from accepting payments in bitcoin for its vehicles, the crypto market was quite shaken up. However, Elon Musk has continued to show his support for Dogecoin leading to a sharp rise in its price but also has raised concerns of market manipulation. What are your views on Elon Musk’s influence within crypto space?

Oliver Deak: Elon Musk is certainly a significant force in the crypto space. We have seen his influence, demonstrated by episodes such as his expressions of concern related to the environmental impact of crypto mining.

It is difficult to pin down Musk’s true views on crypto, as he is so liable to changing them: before suspending bitcoin as a payment option for Tesla due to environmental concerns, Musk was highly supportive of Bitcoin. Indeed, even after suspending its use as payment for Tesla, he stressed he was still a Bitcoin advocate.

Every time Musk tweets about cryptocurrencies, the market seems to react to them. However, while Musk’s questioning of Bitcoin’s environmental impact did indeed play a role in affecting the investors’ sentiments, it was not the sole factor affecting the market. Just like his tweets, many other factors only act as a catalyst for driving investor sentiments.

Extreme volatility isn’t a new phenomenon but an innate characteristic of this new asset class. Volatility is what enables intense growth in the value of cryptocurrencies and plays a crucial role in its appeal to investors.

We cannot attribute the rise and fall of a global asset to one person’s actions. Cryptocurrency is not owned or controlled by a single individual or organisation, and its decentralised ethos has the potential to provide far more financial control to individuals in our financial system.

Ishan Pandey: NFTs have paved the way for the mass adoption of cryptocurrency assets. Although the ecosystem is still in its infancy, what is your take on this relatively new technology, and can it be used in the banking system?

Oliver Deak: NFTs, while a relatively new technology, have picked up steam, particularly due to the increased importance of digital experiences, especially with people being restricted to their homes due to the global pandemic.

It is not yet clear whether NFTs have a use case in our financial system. While the most popular use case for NFTs is digital art on the blockchain, the fact that NFTs are closer to the deed or proof-of-ownership and authenticity for an asset than the asset itself means they have several use cases outside of just art, including gaming, domain names, music/streaming, ticketing and interoperability.

NFTs have opened the door for the broad adoption of crypto assets. Sports enthusiasts, collectors, hobbyists, gamers, artists can all find a project that excites them in a world that previously mostly consisted of finance and technology enthusiasts.

The ecosystem is still in its infancy, and the leaders are yet to emerge.

Even as market interest waxes and wanes, future leaders will keep building and innovating and those that can capture and maintain user attention should do well. I’m excited to see the next phase in their development and see what applications they may hold in finance.

Ishan Pandey: In what ways do you think Covid-19 has affected the banking system and what has been the overall impact of the pandemic on global finance?

Oliver Deak: The Covid-19 pandemic has certainly placed digital payment and digital banking regulation centre stage. It is reasonable to expect that the pandemic will lead to improved regulatory certainty around peer-to-peer payments systems, which would in turn drastically accelerate the adoption of such platforms.

CBDCs are another key area that central banks have accelerated in response to the pandemic and the need for a digital-first payments model in society.

Central banks across the globe have accelerated roadmaps in response to the pandemic, with the question now, when, rather if, such projects will be implemented.

Ishan Pandey: What new trends are we going to see in the blockchain industry in 2022?

Oliver Deak: I expect a number of trends that we have seen in 2021 will continue to dominate the blockchain and digital asset industry in 2021.

The huge capital inflows that we have seen in both crypto projects will continue, I also expect to see the institutional investment into cryptocurrencies which we have seen this year, continues to accelerate, with the fear of missing out on crypto as an asset class increasingly permeating among major institutional players.

The availability of secure institutional-grade infrastructure for managing digital assets can seamlessly enable institutions to access the burgeoning digital asset industry.

I expect that we will also witness greater regulatory on digital assets across a number of jurisdictions, with promising frameworks such as the EU’s Markets In Crypto Assets framework providing legal clarity to both investors and service providers in digital assets, which will in turn act as a significant boon to the adoption of digital assets.

Disclaimer: The purpose of this article is to remove informational asymmetry existing today in our digital markets by performing due diligence by asking the right questions and equipping readers with better opinions to make informed decisions. The material does not constitute any investment, financial, or legal advice. Please do your research before investing in any digital assets or tokens, etc. The writer does not have any vested interest in the company.