Driving institutional adoption of digital assets
Security is one of the major obstacles to operational and capital efficiency in the digital asset market. But developing infrastructure and regulatory support is rousing greater interest among investors, which should further drive progress and evolution.
Michael Shaulov CEO and co-founder of Fireblocks comments: “While blockchain-based assets by themselves are cryptographically secure, safely moving digital assets between counterparties, exchanges, and liquidity providers for trading and settlement becomes an operational nightmare.
“More than USD3.8 billion in digital assets were stolen by hackers in 2020 due to private key theft, spoofing, and compromised credentials.”
Shaulov, together with co-founders Pavel Berengoltz and Idan Ofrat, founded Fireblocks after their experience on the task force which investigated the Lazarus Group breach in 2017, which saw the hacking of four South Korean exchanges and the theft of USD200 million of Bitcoin.
During the investigation, they took note of the shift in the motivation of cyber criminals from hacking traditional finance to digital assets as well as the complexity and lack of solutions for securing digital assets in an enterprise environment.
Shaulov and his colleagues designed a solution that helps organisations operate in a 24/7 market, delivering instant access to capital without jeopardising security or operational efficiency. Today, with over 180 customers, Fireblocks has become the most flexible digital asset infrastructure that helps financial institutions protect digital assets from theft or hackers by using breakthrough multi-party computational (MPC) technology and patent-pending chip isolation technology to secure private keys and credentials while eliminating the need for deposit addresses.
“Our customers need secure rails to trading venues, liquidity providers, lending, DeFi, staking and instant post-trade settlement, and that’s what we’re able to solve with the Fireblocks Network. We have over 200 active participants on the network today, so anyone can plug into that ecosystem and launch their operation from day one.”
Launched in June 2019, the secure asset transfer network was created by building on the firm’s MPC technology. It enables institutions to quickly and securely find and connect with some of the largest financial institutions and exchanges – in order to safely and securely transfer assets on-chain, and without taking counterparty risk to Fireblocks.
The Fireblocks Network is designed to solve one of the core impediments to the adoption of digital assets by financial institutions: the lack of security and speed of transfers. This platform introduces a secure, open network where financial institutions can securely find and connect with their peers while streamlining settlement and post-trade operations. By doing so, the Fireblocks Network increases both liquidity and operational efficiency, opening the door for traditional financial institutions to join the digital asset space.
Shaulov details: “The launch of the Fireblocks Network made it possible for users to store and transfer assets across the entire institutional ecosystem and removes the need for any middle-men.
“We’re redefining on-chain settlement processes by adding an unprecedented layer of security and efficiency, preserving the decentralised nature of blockchain and allowing it to operate at the institutional level.”
Institutional interest and regulation
Institutional adoption of digital assets is one of the highly discussed issues in the industry. As many attest, the Covid-19 pandemic has accelerated interest in the asset class however, Shaulov notes: “There’s still a lack of familiarity with the market structure of the crypto native space, the industry players, business models, and the opportunities. Once you enter the space, you have to address the operational challenges, because you can’t custody and settle assets the same way as traditional assets.”
He underscores that technology will play a major role in the way investors interact with digital assets: “You need a tech stack that is both secure and flexible so your business can continue to evolve with the market. Find a provider with future-proof technology.”
Regulation will also have a hand in the future of the asset class. Shaulov comments: “The EU region is seeing increased interest from institutions as new regulatory clarity provides a framework for how to compliantly operate in the digital asset space.”
In view of this development, Fireblocks expanded its operations in Europe beyond London, adding two new offices in France and Germany. “We are excited to expand our footprint in the region to help our customers launch product offerings for digital asset support and provide the tools that will steward this next phase of growth, innovation, and adoption,” said Shaulov when announcing the launch of the new locations.
Across the pond in the US, he highlights: “The recent regulatory clarity by Securities and Exchange Commission (SEC) and the Office of the Comptroller of the Currency (OCC) on Bitcoin/Ethereum and Stablecoins can be considered the most significant change in the market.”
In January 2021, the OCC announced that banks can use Stablecoins to settle financial transactions. This means banks can now support Stablecoin payments and use Stablecoins for other bank-regulated functions. And although the SEC does not regulate Bitcoin as a security, in an interview chairman Jay Clayton said Bitcoin is, “more payment mechanism and store of value.”
Shaulov observes: “A year ago, people were still conceptualising. What you saw a year ago wasn’t materially different than three years ago but in the last three to six months, it accelerated and everybody is rushing to get those capabilities. Now that the SEC allows broker-dealers to custody digital securities and clients are becoming more open to Bitcoin as an asset, banks have become highly interested in setting up infrastructure for digital assets.”
Michael Shaulov, CEO & Co-Founder, Fireblocks
Michael Shaulov is the CEO and co-founder of Fireblocks, a secure digital asset infrastructure company. Prior to Fireblocks, he co-founded Lacoon Mobile Security, which was acquired by Check Point, and was then appointed the Head of Products, Mobile and Cloud Security for Check Point. Michael is a serial cybersecurity entrepreneur and investor. He is also a recognised industry speaker, delivering talks at RSA Conference, BlackHat and Infosec. Before his commercial endeavours, Michael pioneered the mobile security field in an elite military technological unit (8200), where he received the Israeli Presidential Excellency Honour for his contributions. He holds a BSc in Computer Sciences and Physics from Ben-Gurion University, Israel.
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