TRON 4.0 Online Conference: Demetrios — Global Head of Ledger Vault: Digital Asset Custody: The state of the industry
Great, thank you very much! It’s a pleasure being with you today. Thank you everyone for joining my session today. My name is Demetrios Skalkotos
I’m the global head of Ledger Vault. Ledger Vault is the enterprise security asset storage platform that is part of the ledger’s overall business. Before I get started, I would love to give you a brief overview of Ledger.
Hopefully, you are all familiar with the company. We are a five-year-old security Blockchain company that protects customer endpoints for any critical digital asset for the retail individual, as well as the enterprise market. Ledger manufacturers, the retail hardware devices, hardware wallets called the Nano S and the Nano X. We manufacture them out of our France facility.
We have sold over 2 million of our hardware wallet Nanos and over 165 different countries. From the spawn of that came the ledger vault which is the enterprise business that I currently manage and run today. Ledger has approximately 200 employees, headquartered in Paris France. Again, with the offices where we manufacture. We have offices in Hong Kong, Singapore, and New York where I reside. So moving on, today I will be focusing on the Ledger Vault enterprise business and providing you an overview of the custodial landscape as we see it today. Ledger Vault is not a regulated custodian but it’s the technology infrastructure for custodians exchanges crypto hedge funds and asset managers were part of the digital plumbing. We are a tech infrastructure player that, for folks who want to self-manage their own assets or they want to offer a custodial service into the marketplace today.
So currently today as we see the financial industries, we’re going through a very unique revolution in time with the development of all of the Blockchain technologies both public and private chains. This is really allowing this revolution to really create new asset classes, have they be crypto asset classes, security tokens, digital apps, and also central bank digital currencies. We’re seeing a flex of new assets and the financial industry is really trying to currently adjust this.
It will be difficult for the traditional firms to embrace the new technology until some of these operational risks are addressed and I’m going to outline those operational risks next in my next slide.
So what we’re seeing is some very unique things that are going on within the traditional finance stuff and the critical digital assets are a new operational risk. Key management is considered important in this. As well as irrevocable of transactions. Until these operational risks are identified and regulatory compliance around these things take shape, you’re seeing the new entrepreneurial companies forging this ground but you’re also seeing the traditional financial service assets trying to evaluate, can I use this new technology and take how we have done things, traditionally, in a traditional trade of assets and can they convert to a digital form.
I think we’re starting to see some of that. So these new operational risks with the new Blockchain technology, the crypto assets, and the security tokens, these things all are new play.
With new technologies, always come new risks and always new things to be prepared to manage in order for massive full adoption.
So obviously key management is key. The private keys for individuals and for institutions. The governance rule about managing those keys and allowing people to use those keys are key from a security standpoint.
Also, the irrevocability of a transaction. Once the transaction is made, it’s impossible to reverse. And the openness for public and private chains, you may know who you’re working with others may not know completely who is leveraging that particular chain.
All of those new risks pose new threats for like the traditional financial markets. The custody industry landscape is driven by three main trends. There’s a lot but there are really only three main trends. Obviously beyond BTC. Obviously bitcoin is our largest asset class, the most predominant asset class and people talk about a great deal but you’re starting to see movement with the additional asset class.
Again, the forefront of Stablecoin, the central bank, tokenizing assets, real estate, or traditional bonds and other asset classes that are going to convert into a digital form.
Regulation is still in progress around the globe. You’re seeing each jurisdiction come out with their own guidelines, their rules, how they view this particular asset and cluster and you’re starting to see how those rules will be guided towards and mimic some of the existing rules that we have around the globe and our existing financial infrastructure and how those existing rules take shape today.
And then obviously, the higher operational requirements. Without compromising, you know, on security, it’s really key to make sure in this new asset class, you have insecurity, both the security needs to be prevalent when assets are at rest and not moving but also, more importantly, they are extremely secure when they are in motion.
Have they be in a staking environment, lending environment, trading environment, or what have you. So these keys to success are going to be these three things that are going to be keys to moving this industry forward.
What we’re seeing now is two strategies at work. We’re obviously seeing the opportunistic entrepreneurial firms, these early adopters that are — could be primarily security firms, technology firms, crypto exchanges that have been first movers in the offering, trade execution by offers the custodial service along with that trade and lending platforms.
While they’re thinking about this asset class, should I try to build something myself? Should I buy something myself? Or should I partner with someone in this particular space? You’re starting to see movement from the traditional actors getting into space but I think you’re going to need to see some more regulatory guidance for kind of full, mass adoption from the traditional firms.
What we’re seeing in play here. This space as we all know is very very young. The industry started out, is relatively young, 15 years old. Predominantly retail and with the advent of the institutional landscape has only been the last few years where you’re seeing more and more institutional adoption into the particular asset class.
With the institutional adoption, it means that digital plumbing infrastructure that needs to be in place in order for the institutions to come in and be part of this service.
You know, through learning the client’s real needs around the real asset classes. I kind of highlighted what I think are the top five that driving adoption into space or hesitation and these things will be addressed to have further adoption.
Obviously, security is key. None of our clients want their assets taken in any way shape or form. The governance rules about the tech around how can I have segregation of duty? How can I make sure that people are approving actions or transactions that are qualified and approved to do so?
The flexibility around this industry is open to other solutions, right? You want to make sure that you’re building an ecosystem for others to connect into it whether they be exchanges, clearinghouses, summing houses, tax and audit systems, fund and administration services, they’re all going to be integral to building the secure ecosystem for the custodial landscape.
Obviously speed of execution, you know, how quick can we transact. It’s not just speed but the security of going into that speed and making sure we’re leveraging the governance rules within the speed of execution. I added the fifth one from an insurance perspective. Obviously we want to make sure that this industry is properly covered as the proper protections in place for assets that are both, again, at rest and in motion.
I think all these five characteristics we’re starting to see further advancement in each of them then, and we’re starting to see further adoption in the custodial space. Currently, today in what we have seen in some of the technologies that are at play that have come out in this entrepreneurial environment to offer a custodial service into space has really been about cold and hot platforms.
This characterization of technology to me, I think is really obsolete. We really need to be changing the paradigm in how we build technology both from a hardware and software perspective that allows our platforms to emulate secure, very cold technology or very warm liquidity management tools for hot wallet characteristics and you’re not compromising on security in each one of those fashions.
So I’ll break down some of the difficulties in what we’re dealing with today in some of these characteristics of cold and hot.
From a cold storage perspective, yes, early-onset, things are completely one hundred percent online. They have a tendency to feel that they’re more secure but in reality, these types of solutions do not really offer a great deal of flexibility.
They’re not really offering a great deal of liquidity. Obviously speed is crippled in this standpoint because it takes anywhere from 4 to 48 hours to get assets out of cold storage. You have to have the need for some type of human interaction and now with this pandemic COVID-19 world that we’re adjusting to in our new reality, it’s very difficult if you’re having your assets in a cold storage device that could be in your office or facility that you’re not allowed to access any more due quarantine.
How can you make the best of something that could be offline and really make sure it’s extremely secure but accessible when needed and eliminating that human interaction. And that threat. Some of the new solutions and the new paradigm that I want you to start thinking about are really around, you know, what I would classify as temperature agnostic. We really need to change the reference, it’s not really hot or cold or warm. It’s real temperature agnostic.
You should be able to, with technology, secure technology platform, design your infrastructure to where it emulates the best of cold storage and the best of the hot wallet and each wallet should have its own governance rules and principles allowing you to act in accordance with your desired structure for each particular wallet.
That’s really the new point of reference, the frame of reference that we’re trying to get across from some from ledger’s perspective and some of the other peers in this space that are providing a much more temperature agnostic platform that customers can specifically design to their security specifications.
So let’s forget the distinction between hot and cold wallets. We want to make sure things are secure. Again, the ledger is a security company first and foremost. So when we view creating a hardware wallet for an individual, or a wallet platform for institution, it’s with the security mindset, first and foremost. So again, things to be secure at rest. You need to make sure and they need to be secure in motion. In between there, all of the wallets, the governance, the transaction enforcement, transaction verification, and all of the printing to the Blockchain, that whole process needs to be extremely secure. So you’re eliminating any particular man in the middle attacks. Single points of failure, all throughout this continuum of how we’re going to be securing our assets and moving our assets around.
These are a few of the players that are in the space. Some are offering partial solutions in the space where they’re providing secure signing of the transactions.
Whereas, the full solutions are real providers of a full stock solution from a hardware, software perspective, key generation, governance rules, and also building the nodes and explorers for transactions to the Blockchain.
Ledger has developed this technology which is a combination of both hardware and software and we provide kind of end to end security for the assets at rest and in motion.
We’re eliminating the man in the middle attack, any single point of failure and any human intervention that could provide any collusion issues, security collusion issues.
In order to move assets within the ledger vault infrastructure, you need multiple approvers to do so or you need to set the governance rules that will go to a specified kind of hardcoded white listed account.
So we go to every measure that we can possibly do to ensure assets are secure at rest and in motion and every step along the way of getting it in motion. So the next generation of custody will only thrive if you have the same level of security that we have today in our traditional landscape and I would say even more security.
You know, Ledger is in the security business. That’s what we are. We are a security company, first and foremost. We’re here to protect any digital asset. Again, we mean to be agnostic whether it’s a crypto asset, a real estate asset, a security token asset, or asset agnostic is our plan and goal and we want to make sure we’re securing each and every one of our customer’s desired assets that they want to protect both at rest and in motion.
And being a security company first, Ledger has its own security division. We have roughly 10 to 12 people that make up the London we have hardware that is in part of the ledger infrastructure from the resale, an institutional perspective and first and foremost, we also test a lot of the other products in the space. We want the space to thrive, succeed, and flourish, and become mainstream.
In some of our external testing, we did find 14 vulnerabilities in commonly used HSM and we DIZ disclosed to them and made the entire asset class and entire industry better for our dung again activities. This is one of the key components we have in making sure the safety industry is up to par and helping theme with their vulnerabilities but also testing everything that we produce that comes out from Ledger in our environment.
Now, it’s never been so important to create new technologies. Ledger is at the forefront to address the retail components and the institutional needs of this fabulous market that we are currently serving today.
Whether it’s individual retail hardware wallets, security components or an institution custody platform for a bank, all of those needs are the same.
We are here to provide the security digital plumbing for the industry so it can scale and it can become more mainstream. That concludes my presentation. Again, I’m Demetrios Skalkotos, Head of the vault, and thank you for your time listening to my presentation.