Patricia Ho on finding the best regulatory home for crypto companies

0:00I'm ashon Addison from the Crypto Coin 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 it's it's hard to follow along unless you're really paying attention like you are and that's part of your job at scroll as well I know would love to hear first of all before we dive into the whole world a

0:44little bit about yourself 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 scroll is actually a to roll up scaling solution for ethereum so we use 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 basically build their decentralized applications on ethereum now my name is Patricia as you mentioned I'm based in Hong Kong spent a lot of time in Asia worked sort of everywhere globally London us other parts of Asia as well my career I before scroll I was actually at one of

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

1:57particularly when we think about 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 the traditional Financial system was also you know coming through with their difficulties so that's a little bit about myself I think crypto is a super interesting space particularly

2:18with people from trafi I think there's a lot of opportunities 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 business and with a project like scroll we're open source from day1 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 what has been a bit less fortunate is

3:50really the regulatory uncertainty that we've been seeing in the past 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 you know the libraries of the world and

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

4:43strange situation because they want to build something but they find that whatever they build may not be suitable for the US market and I feel that they're also looking for other ways to grow their protocol particularly you know going to the European market coming out to Asia 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 a little bit more on the regulations I think for example cases like Ripple cases like Unis swap these are Enforcement cases that you know have been sort of dominating the news in the past few months 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 to retail investors on a secondary you know exchange right that is in a sense not really that logical 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 and I'm afraid that some of these decisions leave you know project teams or other people in the industry 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 some of the bigger platforms like coinbase 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 for example they're staking as a service that has been 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 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 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 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 the SEC coming at them because they're targeting the wrong

8:13actors ABS absolutely yeah I think this is unfortunately the consequence of you know having a series of enforcement action and you know potentially not very logical you know from legal principle basis sort of decisions coming to light 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 do agree with 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 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

8:59You know just just by association of being in the same industry and I hope that you know with the FTX trials now being more settled at least until March will get the sentencing but it's sort of 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 you know are

9:22around globally 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 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 we want your business actually it is a bit like that action you know no exaggeration

10:06intended at all and it's it's 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 in the past few months so I think let's start from the beginning so Hong Kong last year in October basically came out with a government policy to support you know Hong Kong becoming the next Global health for

10:30virtual assets so with a coordinated effort 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 so with that you already have a much more friendly 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 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 for example with the Hong Kong monetary Authority on stable

11:37coins have been very open and transparent discussions so that's one thing that has been very very encouraging and on the regulation side actually there's been a lot of work already done as well so Hong Kong already has enacted a virtual asset services provider regime in June of this year 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 custody requirements agregation of client assets 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 growing transition from centralized trading platforms which obviously have to follow all the rules

12:55and then when you throw in Defi and decentralized trading 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 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 but obviously you want to make sure that they're stable 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 is act is also

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

14:27Staple coins Hong Kong is due to announce a consultation on Hong Kong dollar stable coin and UK end of October also announced their plan for UK stable coin to be used as a means of retail payment so you can see that you know we're starting from 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 maintain the stability between the state coin value and the underlying assets value and you mentioned there about the 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 the same page so that they can hopefully stay up to the innovation of what we're seeing in Southeast Asia 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 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 which is also by face and it's quite rigorous regulatory standards so I think else you know elsewhere around in Europe I do think that UK is going to be one of the Innovative centers it

16:06also benefits from being traditionally a major International Financial Center because you know stable coins to make something sustainable 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 I feel like right now 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 depreciated over over the years you know how can we sort of make it truly stable and not 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 when I look at usdc aler Cole and I look at tther and sort of the different paths they've taken it is a very different approach I think it is quite I think it's quite obvious that circle is going down the license route they're very engaging with a number of regulators

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

18:08pairs are actually you know using usdt and I think they're also becoming more visible I would say with their recent CEO 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 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 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 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 with Luna the collapse of Luna last year so I think we need to give them a little bit more time 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 are very very open to discussions 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 innov Innovation zones and great company setups for blockchain companies what do you think about them as an upcoming space for the blockchain startups and the

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

20:37From 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 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 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 so it's a very ready made regime already and I believe there's a lot of excitement about you know people setting up in Dubai and also Abu Dhabi as well so it's the entire GCC the gulf 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 three company 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 because I think that there is really a lot of Tailwind in this part of the world and there's a

21:46lot of room for experimentation so it's it's sort of a very open kind of environment where you feel that you can test a lot of things out especially if you are starting your own project 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 the that level of Engagement with regulators and the industry as well very cool Patricia I appreciate all the insights into the whole world it's hard enough to follow along with the US News when you know you're focused on so many other parts of the industry so I appreciate your expertise in all of it

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

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

23:12well I really appreciate you taking the time all the best with everything moving forward in your work 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