29 Sep 2022 · 14 min read

Interview With BISON app CEO Ulli Spankowski – Part 2: DeFi Compelling But Who Do You Sue And How Crypto Makes Everything Connectable

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

This is the second and final part of Cryptonews’ exclusive interview with 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. The first part of the interview can be found here.

In the first part of the interview, available here, Ulli covered regulation, the Markets in Crypto Assets (MiCA) framework, Europe’s big crypto opportunity and the future of stablecoins, among other things.

In this final part of the conversation, Ulli, among other things, tackles DeFi. He describes its disintermediation potential as “quite compelling” but believes its further progress will depend on solving the problem of “who do I sue” if something goes wrong.

According to Ulli, unlike centralized exchanges that have had the time and experience to become “crisis-resistant", this cannot be said for many of the actors in DeFi. Add to that the adverse centralisation problem and Ulli thinks this will stymie institutional level adoption.

Blockchain will unlock value across all industries

On blockchain application in finance to drive down costs, he sees some validity in that but the bigger picture will be how the technology will be applied to unlock value across industries through the application of tokenization. For Ulli “It is not just about being able to own things in a different way but how these elements become connectable.”

At the center of the distributed ledger technology (DLT) revolution will be the “symbiosis between traditional financial services with non-financial services, combining services of let's say, the real industry with the financial industry”.

From automotive mobility to loyalty programs and marketing, Ulli describes how crypto and sectors such as NFTs can be transformational. He says the metaverse is a real thing but will take time to reach its potential, but that could all come together in the next five years.

BISON app is planning to double its coin listings

Concerning the BISON app, he explains its approach to listings, revealing that it will double the number of coins it lists from the current 10.

Known for its cautious and diligent approach to assessing coins for listing, Ulli explains how that is even more necessary given his group’s many institutional partners. In May BISON app signed a deal with one of Europe’s largest online brokers, flatexDeGiro, to facilitate its crypto offering to its customers.

As for the market outlook, he sees light at the end of the tunnel in 10 months or so, but thinks there may be a fall in the real economy tied to the energy crisis to work through.

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Gary McFarlane (GM): Do you see DeFi being adopted by major financial institutions? Or do you see it as a question of the new guys who are crypto native displacing areas of what you might call legacy finance? Or perhaps the two worlds working together?

Ulli Spankowski (US): I think that DeFi is an awesome concept. The idea of having less reliance on an intermediary is quite compelling. 

However, when you look at how traditional finance on an institutional basis works, there is always one question at the end, who do I sue? If things go sour, how can I get my money back? And who do I go to for redress? 

There are some DeFi protocols and projects out there that are already starting to incorporate this reality – of having a compliant way of setting up, by having rules so it is not completely Wild West. 

But in general, I think DeFi is more a B2C and peer-to-peer thing on the retail level than on the institutional level. I think institutional adoption will come years later when you have solved a lot of this “who do I sue” problem. 

Institutional investors on a very broad scale, are not in the need to make 20-25% APY – they're fine with like, three to five to seven, depending on the risk that they're actually engaging. 

DeFi will be more of retail thing for now

So I think it'll be more of a retail thing. And if we go into the institutional players, DeFi will more likely solve institutional problems like automated market making, or non bankable assets and assets that are not really that highly traded, but I don't see this on a very strong institutional level at the moment. 

Plus, DeFi is not as crisis-resistant, as for instance centralized crypto exchanges that have been around for almost 10 years if you think of entities such as Bitstamp. There have been a lot of crises and crashes going on in these past five to 10 years and these exchanges have dealt with it. 

The same cannot be said of the DeFi space, where every week we see another bridge that's been hacked, or another problem that appears stemming from the lack of transparency around things like node centralisation and governance. 

GM: Looking at distributed ledger technology (DLT) more broadly and how it could strip outback office costs back office, a number of institutional players such as JP Morgan have been out ahead. Do you see that progressing or are the interoperability issues of competing systems being used by different banks and asset managers a barrier?

US: For institutions that’s an issue, with each trying to have a kind of closed-shop blockchain technology and it also comes back to that question, ‘who will you be able to sue if things go sour’? 

So you're basically restricted to only a certain number of participants that can be, let's say, active on the system? And that only works if everyone basically accepts your solution. However, how does this interoperate with other open networks that tons of more people are using? 

I think there might be some cases when it comes to, say, settlement in parts of the banking space, where you have really large ticket sizes that are within an institution’s own control, but in general, I think probably it's more likely that public blockchains will take root. 

Particularly if you think about Ethereum, smart contracting, payments and payment solutions, I think that open systems are more likely to succeed than big institutions with their closed systems.

GM: What sectors do you see as most ripe for disruption from blockchain technology outside of the finance sector?

US: I think, for example, mobility and the energy sector have significant potential for blockchain, but I see its adoption more widely where lots of disparate industries include it in what they are already doing. 

It is a holistic thing – where you can combine ownership, combine contracts, combine basically payments in one DLT solution. And that's the interesting part. Therefore I think this is also where Web 3.0 goes. 

Blockchain to me is the further development of the internet

Blockchain to me is a further development of the internet, where you can actually not only consume, but also participate in, let's say, the productivity of the internet; and you can bring your own assets onto that level. 

If you think about your digital identity, the data that everyone out there, all the big corporations pour from us, maybe we will be able to be more in charge of our own data and make money on that. 

So I think it's a combination of the financial industry and financial services with completely different services, such as the automotive industry and mobility I mentioned earlier. 

I like the example of a tokenized version of the parking lot, where your car has a chip inside so that when you drive in and out, the payment is taken automatically. Well, that's not really all that fancy. 

The really interesting thing is you can be an owner of that parking lot or, with tokenization, become a partial owner of the parking lot. 

The more cars going in or out, the more money you make. Maybe I center on automotive because I’m German but automotive mobility and energy sectors can really make use of tokenization.

GM: You tie this tokenization vision to how you see blockchain technology being applied to all sectors, but some more so than others?

US: Potentially, yes. Ultimately there's different levels though. If you look at the NFT space, there’s the possibility the branding or marketing sector changes completely. 

Loyalty programs of the past are already becoming something different now, if you think about NFTs as a partial ownership of something that can be attributed with different rights. It's not only a loyalty program, but you can actually actively engage with the loyalty program, so it becomes a different thing. 

Also it's much more powerful than having a loyalty program where you collect miles, right. So it actually gives you the chance to be a more engaged fan or supporter, plus you can really benefit from it. 

The younger generation already live in an online parallel world

Then there’s the younger generations who are completely into the gaming area and increasingly live in their parallel online worlds. 

While we have been brought up with Facebook, that was our thing, the young completely live a Second Life world, where you basically can shop, consume, and then maybe automatically have it delivered in real-time. 

So it's basically a three-layered Amazon –  you know, you live in the world of something you like and you consume there and can get its associated products physically delivered later too.

GM: I was just coming to the metaverse. You've covered it there really – so you think it is more than just hype. It is a real thing that will happen with the internet; things will move in that direction?

US: Yes, I think it gives a complete new perspective on areas like loyalty programs and fan engagement. And also it will be significantly impacting how we do marketing in the future. 

It is not just about being able to own things in a different way but how these elements become connectable.

GM: And do you see this technology as an area which will be perhaps colonized by the existing U.S. big tech companies? Will Europe be able to take advantage of its head start in crypto regulations and start to see impacts from that.

US: You can see how heavily these companies are already focusing on getting in there. For example look at Meta and Facebook and how they really tried to, you know, change the business model to own this, this world; and how companies jump on it like McDonald's Breitling, all these luxury brands, going into the metaverse trying to get their customers in there and hook them in. I think it will be a very big thing. 

However, I don't think this will be something that we will see next year. So I think it needs some time to develop. So I think at least five more years, until the metaverse really gets going. 

Nevertheless, I also think that probably in the future there will be much higher awareness. And here, I think blockchain will also help us when it comes to data and private identity and how we move and behave in that metaverse.

GM: Going back to your core business. At BISON, howI do you go about determining which assets to list? Obviously liquidity is a key determinant, but what are the other criteria that are in scope?

US:  Customer interests and let's say market cap are top concerns, and as a fully regulated institution, can we be assured that we will hit all the regulatory and compliance requirements that are connected to the coin. That can mean ‘travel rules’, chain analytics things for tracking and tracing coins that you need to do in order to comply with regulatory requirements. 

Since we do escrow custody for our customers, we also need to make sure that we can guarantee or can make sure that we have a safe custody solution for that coin for our customers in case they don't want to self-custody. 

We also look at areas such as taxation; how the clients might be taxed; who is standing behind the protocols; do the protocols have issues related to parties and partners that we don't know about? 

We’ve created a very stable listing process that works well. Listing new clients is not done with a blink of an eye. It takes some time. Plus, we have our dedicated legal and compliance departments that also will have a say on listings

GM: Three are lots of things to consider, so it's a hell of a minefield. But on the other side, there's maybe a danger for some firms that they don't move fast enough to capture trading volume around new coins. But you guys are more at the Rolls-Royce, or Daimler Benz end of the industry where you prioritize quality over quantity and good due diligence deliberation over speed?

US: Yes, that’s exactly what we're trying to do, but we also focus on getting faster. But if you look at the business customers and partners that we’re working with, or looking to work with, they're even slower than we are. They need to be convinced more on the institutional level. 

For example, we recently in May announced a deal where we partnered up with flatexDeGiro, which is one of Europe's largest online brokerage houses and they're using us for their crypto offering to their customers. 

Exactly for these reasons we have to have everything totally legit and regulatory-compliant. These partners will be more concerned with that than having a gazillion coins listed.

GM: Stepping back to take in a wider view, where do you see the crypto market and industry in maybe five to 10 years time? Do you see headway on payments? Or is that going to be a bit of a non-starter for consumer payments? Or will it be more on the industrial side, as in infrastructure and businesses using the tech?

US: First of all, when it comes to crypto, I see it much more regulated and much more institutional, meaning that we will see very, very traditional large players entering the space. 

When it comes to digital assets and what you can actually do with blockchain and DLT (distributed ledger technology), in say within 10 years I see a much closer connection of areas that have not been connected so closely before, as I mentioned previously. 

Crypto to create a symbiosis between traditional financial services and non-financial services

There will be a symbiosis between traditional financial services with non-financial services, combining services of let's say, the real industry with the financial industry, and lots of new marketplaces, with newly tradable assets – the arts, cars, real estate, you name it, will be moving in that direction. 

This means digital asset portfolios will become more diversified and broader. Crypto tech will bring service enhancements to the real economy that in turn are then combined with financial services enabled by blockchain.

GM: What about the risks the industry faces from say over-zealous regulations, prohibition or other threats? And where do you see the market headed in the short term, where’s the bottom?

US: I think there's obviously always a risk when it comes to security, data breaches, etc. 

But the major risk is over-regulation. If we ever got into a situation where we have a financial markets crash on the scale of 2008 and crypto had contributed to that systemic risk that underlay that, then probably there over-regulation risk would follow. 

I hope as an industry we are not focused so much on pure money-driven things

That's why I really hope that we as an industry are setting things up in a way that we are not   focused so much on pure money-driven things, but that we also keep in mind that we need to have a very solid technical and regulatory setup. 

If we manage that, I think crypto will be a game changer. But risks in terms of cryptocurrencies being forbidden in some regions of the world, well they're already forbidden now in certain countries. So that’s a real risk. I don't think now with MiCA that Europe will be that place. 

Actually, I think the European Union is smart enough to understand that, as I mentioned before, crypto will create a lot of opportunities for Europe and job opportunities as well. 

But yes, prohibition or highly restrictive legislation in other nation states globally might be a problem. 

Perversely perhaps, if bitcoin is super-successful and really becomes like a global currency, then I think we will have a problem because that’s when states will start to see bitcoin as a threat to national sovereignty.

In truth I don’t actually believe this will happen – bitcoin becoming a globally traded currency like the dollar of euro. But if that did happen, that in itself, regardless of attempts to ban it which would probably fail for technological reasons, would be a huge game changer.

And on where the bottom might be, that’s hard to say but from a European perspective it is certainly connected to the energy crisis and that is related to the Ukraine situation, so what happens there would be an indicator.

Perhaps we are looking at a fall in activity in the real economy in the near future and this could even mean a further down step in the market. But I will stick my neck out and say that I think there is maybe 9-10 months more of this crypto winter.