29 Sep 2022 · 14 min read

Interview With BISON app CEO Ulli Spankowski – Part 1: It’s Time to Build Crypto Product and Why Europe is Smart and Stablecoins are Strategies

Ulli Spankowski, CEO BISON app, chief digital officer Boerse Stuttgart Group and founder of Sowa Labs

In the first of a two-part interview, Cryptonews spoke exclusively to Dr Ulli Spankowski, Chief Digital Officer at Boerse Stuttgart Group, founder of Sowa Labs and the BISON app, as well as being the CEO of the latter.

In what was a wide-ranging discussion, Ulli provided insights on developments in the crypto space and where we are headed as an industry.

Ulli discussed how current market conditions help the best companies in the sector to concentrate now more than ever on product development. 

He explains how regulation was always at the center of the approach taken by BISON app, which is the flagship digital asset product of the sixth-largest exchange group in Europe.

Europe is being smart with MiCA

He thinks Europe is being smart with MiCA (Markets in Crypto Assets) and it will bring companies from outside the EU into the region as well as acting as a dynamo for job creation. Ulli is insistent that crypto is a big chance for Europe.

Ulli also elaborates on how the participation in the industry and market has changed, with many more institutional players involved, and how this is something he is seeing with BISON and the Börse Stuttgart’s institutional partnerships and clients.

Algo Stablecoins open up attack vectors

Moving one, for Ulli stablecoins are “clever and brilliant” but they have their difficulties. However, he explains that ultimately stablecoins a “strategy” akin to those once adopted by central banks. 

Although clever, algorithmic stablecoins risk opening up an "attack vector on that strategy", which means they could be eclipsed by physically-backed stablecoins.

Ulli believes smart regulation of stabelcoins is the essential missing ingredient in order to put a stop to “market manipulation”.

He also thinks central bank digital currencies are unlikely to displace stablecoins.

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Gary McFarlane (GM): Where we are in the market at the moment obviously presents challenges for all entities in the digital asset sector, but also opportunities. So for an organization such as yours, which is I would put at the top of the tree and I imagine has a very good balance sheet – that puts you in quite a strong position. What’s your perspective?

Ulli Spankowski (US): Yes, actually, that's right. Within Europe, we are the sixth-largest exchange group, when it comes to overall market capitalization. We're probably globally amongst the biggest traditional financial exchanges [Börse Stuttgart] that has, so to say, the largest exposure in the crypto space. Yes, as you put it, the times are quite challenging. 

From a customer perspective, it's actually quite interesting. It could be seen as an opportunity to enter or re-enter the market, and lots of people who are used to the crypto space are actually taking that opportunity. 

Looking at it from the perspective of a company in the market, obviously it's quite challenging as we can see throughout the whole industry, right? 

Revenues are lower than expected probably for all crypto-related providers and exchanges and marketplaces across the globe. You can also see that lots of exchanges are either laying off staff or getting into some other serious difficulties. 

Focus on crypto product and development

However, it is also a scenario for focusing more on your product development and the further development of your strategy. 

What works well, what can work even better? And what do you have to change with regards to your product offerings in order to be better set up for the future in order to weather similar storms again in the years ahead? 

I think this is an approach and an opportunity that we see a lot of our institutional partners currently taking. We are doing the same by focusing very strongly on further growth strategies and ways to make our product even more compelling for our customers.

GM: Following through on that , it looks like there are a lot of institutions that have done their strategizing and research and are now coming back and saying, Well, let's do this. For instance NASDAQ recently announced a custody operation

So against the background of the crash, institutions – and retail investors – are taking a more level-headed approach, and even those institutions that may still have doubts about the digital asset class, are saying we need to meet client demand and be open to crypto. Is that a fair assessment as you see it?

US: Actually I completely agree. Obviously, we are now in some kind of crypto winter, where we have had various circumstances coming together, starting from the crisis in the Ukraine and the really bad economic environment in Asia. 

Crypto over the last three or four years has been developing from an investor perspective differently, as it was previously mainly retail investors. Now we have lots of institutional investors also involved in the space. 

Due to inflation and the change in interest rate policies globally, I think lots of investors in the tech space looked to move into less risky investments. These lower-risk returns are more available because interest rates are rising. 

And the relationship between tech stocks and crypto has contributed significantly to the dramatic fall in digital asset valuations.

Lots of institutional players are long-term crypto

However, to concur with what you were just saying, I see from the institutional partners that we are engaging with, and the potential customers that we're talking to on the institutional side, plus what I see in the news, lots of institutional players are long-term for crypto. 

So they have been investing significant amounts into navigating regulation with their product setups. I don't think that they will now all of a sudden just stop and decide not to offer crypto in the future. 

That’s particularly the case if you take the fund industry. They've just started to get into the field and they have a lot of requests from the retail side. So there's pressure to deliver and to bring products to market that the customers want. I see a lot of institutional adoption to come in the next two, three years, which makes me a bit more, let's say, relaxed on the fact that we currently have this drop. 

However, we should add that this drop is different to what we have seen in the past, due to the fact that I think now we have a couple of situations that all come together, such as tech investors dropping out as I mentioned, plus the Ukraine crisis and the energy problem connected to it. And, also, of course there’s some crypto-specific market problems when it comes to lending and DeFi.

GM: BISON is known for being very conservative and rigorous in the number of assets you offer markets, with 10 cryptocurrencies?

US: Yes, at the moment, we're actually offering 10 cryptocurrencies, but within the next few months or so we will double our universe of crypto offerings.

And, yeah, I think this is also the way to go forward to offer, let's say, the most relevant and interesting coins, obviously with the market cap to support good liquidity. You always have to focus on who's your customer and who wants to buy the product. 

I think there is no need to offer like hundreds and 1,000s of different crypto. In particular you have to look at the trading volumes, because as a trading venue, obviously, we make money from trading. If you have coins listed that are not traded much, that's just producing costs and no gains. 

We think our approach is the smart one.

GM: Great, let’s move on to regulation, which is clearly a very big issue. Europe is ahead of the curve on regulation globally, even if the MiCA framework is not coming in for maybe 18 months or so. Again, I guess at BISON you're in a strong position, because BISON is part of a highly regulated group already. So that gives you a head-start on the competition right?

US: Yes, so actually, that's a very good point that you make. Regulation, from our perspective, was always something absolutely necessary to make crypto mass marketable. 

Of course regulation matters in the retail space regulation, especially when it comes to customer protection. But you won't be able to do a mass marketable product in institutional space if you don't have the appropriate regulation around it. 

From the very beginning we took the attitude that we need crypto to be fully regulated; we need to have all the necessary AML (anti-money laundering) directives, all the necessary licenses etc. Without that, I think it's too difficult to get German retailers and institutions on board. Germans in general, I think, are a little bit more risk averse than elsewhere. So I think regulation is actually a plus, and at Boerse Stuttgart we comply with all the regulations. 

On regulation if you already have everything in place you are at an advantage

It's a significant cost factor, right? So yes, there is an advantage if you already have everything in place, and you're used to that area, you've been building up your business models in the past around regulation. 

So yes, I think regulation in a way is an opportunity for us, however, and I also need to confess that sometimes complying with regulations is not as fast as just building  products. 

Let me put it this way – there are other marketplaces around that, you know, have been quite successful in doing jurisdiction hopping and maneuvering around from place to place just to avoid having to comply with certain regulations. 

For me, being compliant is a long-term gain. So the question really is, will you be successful in an institutional environment if you have that type of ‘hopping’ history? 

And the partners that are working with you – do they accept that type of strategic policy you have chosen?

I think Europe has done something really, really smart

We are very much in favor of crypto regulation. And what you said about Europe being ahead of the curve, I think Europe has done something really, really smart. Because it's not only about regulation, it's also about jobs, right? 

Having an institutional framework for trading crypto and other digital assets in Europe, enables us to have a very appealing economic area for other companies to operate in. 

And if I take the German example, we have invented a lot of great things in the past, which then moved into production in other parts of the world, because we were just not focusing enough on what really creates value for us. 

So I think regulation plays a significant role. And I think Germany, and also the European Union, have understood that, by developing a solid regulatory framework around crypto and digital assets. 

This enables us not only to offer products, but to create jobs. I believe blockchain and the whole digital asset space will create significant employment opportunities in the future.

GM: And do you think the European example will become perhaps a template for global financial supervisors and regulators?

US: Obviously you look around globally to see where there are solid retail and institutional regulatory frameworks in place and then basically take best of breed and apply that. 

But do I think that we globally will have a MiCA? Never, because regulation is something states are very protective about and is sometimes used to hinder other participants that might want to enter your economic area. I think attitude’s will be similar where crypto regulation is concerned.

GM: Sure, but do you think the outlines will be similar in terms of things like the IMF’s iso called “travel rule” for recording the IDs associated with transactions and so forth, even if the various nation states implement things slightly differently?

US: Yeah, we can see that globally, particularly when it comes to AML. There will be common rules across the globe, that I think all the nations will basically have the same view on. And from my perspective, I also think, to make that more institutional grade. It's also quite necessary to have that, definitely.

GM: What do you think the fallout from the issues around stablecoins will be after what happened with TerraUSD? 

Are we seeing a domino effect across the industry, especially with algorithmic stablecoins? Is that going to speed up the bringing forward legislation around stablecoins? We talked about how regulation is something we need in the industry, but is there a danger that the regulation could go too far? 

Maybe regulators will say only banks can issue stablecoins, or there will be onerous capital adequacy requirements that are hard for the average crypto firm to comply with? So how do you see things moving forward? There are a lot of questions in there. But take whichever part you'd like.

US: Stablecoins is a very interesting field. First of all, I think the idea of having algorithmic stablecoins is clever and brilliant. However, in the blockchain space, it's quite tricky to really be successful on that. 

And why is that the case? Basically, an algorithmic stablecoin is a strategy, right? It's a strategy that central banks used to follow in the past with fixed exchange rates with a currency peg to another currency. 

The difference here, from my perspective, is that once it is carved in stone, so to say in an algorithmic stablecoin, there is not really a lot of room to maneuver and to change that. Plus, it then completely opens it up to the possibility of an attack vector on that strategy. 

And you ask if we need capital adequacy requirements or rules, I think that could be a problem. I think it is important that we have regulation to stop market manipulation. 

If you take for example, Terra USD, this is actually something that happened to the Pound Sterling, when I think Soros launched the attack that forced it off the European Exchange Rate Mechanism. 

Rules needed to end market manipulation

If you have adequate rules that hinder market manipulation, you can actually make these actions illegal. And I think that that will help safeguard algorithmic stablecoins if we have a more transparent blockchain space. 

I'm not 100% sure whether it's the right thing or not; I think stablecoins have increased significantly in impact for the whole crypto industry. But I think the physically backed stablecoins probably will be more successful than algorithmic stablecoins.

GM: Do you think the impact of stablecoins will be to accelerate development and adoption of central bank digital currencies (CBDCs)?

US: Actually, I don't think that the central bank digital currencies will replace private stablecoins, but I think the true role of central bank digital currency will actually come into place once we have MiCA; and once we have more digital asset activity when it comes to digitizing stocks and other asset classes using blockchain – I think that’s where the central bank digital currencies will play a more important role. 

I think the true push for a central bank digital currencies will come after regulation is in place and with the adoption of digital asset trading and digital assets settlements when it comes to the pilot regime, for instance.

GM: Do you see dangers around a CBDC being introduced regarding privacy. A CBDC would provide an awful lot of potential control to a centralized authority to track every single payment across the economy. But also, it would have advantages, I guess. Presumably those are reasons why the central banks are interested. What's your feelings on that?

US:  It is difficult to say what the socio-economic effects will be. From a technological perspective it is particularly interesting. However, I do fear that in the larger public space people will be aware that privacy is being taken away from them. There is a certain level of privacy that some people just want to keep. 

And if I can mainly speak about, let's say, the German people and  from a customer perspective, then I think even here you will have significant amounts of people saying, well, it's good to have a central bank digital currency that I can use. But as soon as you think about abolishing the cash system, there might be an issue and people might not want that. 

So let's see, I cannot really say how this will all play out. At the end of the day governments are elected by the people. So probably there will be a significant amount of opposition if you take away all the privacy, and this could create more room for cryptocurrencies that focus on privacy.

Go to part two of the interview with Ulli Spankowski here.