FTX Downfall: Is Insurance the Bitcoin Savior?

🌟 Welcome to another gripping episode of the Halving Report! 🌟 In today's discussion, we're diving deep into the financial landscape's intricate layers, especially focusing on the challenges faced by companies maintaining a one-to-one asset ratio, and the aftermath of FTX's downside on the industry.

With our distinguished guests 🎤 Ben Davis from Superscript Insurance 🎤 and 🎤 Dina Shenouda of Purves Redmond Limited 🎤, we embark on a journey to demystify the conundrums around centralized companies, the future of on-chain transparency, and the paramount need for sound risk management in the crypto space. We also analyze the varying regulatory approaches across key jurisdictions and their implications for future business operations.

🌟 **Check Out Today's Hot Topics!** 🌟

0:03 | 🛡️ Navigating Digital Asset Insurance
01:50 | 📈 Crypto Submission Rates Today
03:00 | 🚀 Ben Davis: A Crypto Voyage
08:00 | 💸 Risk Transfer in the Crypto Realm
13:30 | ⚖️ Centralized Crypto vs. DeFi Dynamics
15:40 | 🧱 Building Walls: Custody & Exchange Divide
6:10 | 🌐 Insuring the Future: Emerging Market Trends
15:00 | 💡 Revolutionizing Finance: Oversight Evolved

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💥 To grasp the potential regulatory developments and their implications on the crypto space, this episode is a must-listen. 🌈 Hit that 🛑 SUBSCRIBE button 🛑 and join our quest for insights that could revolutionize your understanding of the evolving digital finance ecosystem. 🌠

🌐 Connect with Ben Davis 🌐

🔗 Meet Ben Davis: https://www.linkedin.com/in/ben-ddavis/
🔗 Dive into Superscript Insurance: https://www.linkedin.com/company/superscript-insurance/
🔗 Explore their offerings: https://gosuperscript.com/

🌐 Engage with Dina Shenouda 🌐
🔗 Engage with Dina Shenouda: https://www.linkedin.com/in/dina-shenouda/
🔗 Delve into Purves Redmond Limited: http://www.purvesredmond.com/

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Transcript

Speaker 1: 0:03

Dina Ben, welcome to the Havring Report podcast. Thank you both for doing this tonight. It's a pleasure. Glad we could finally make this happen. Dina, if you don't mind, you just provide us a quick introduction for yourself and your relationship with Ben.

Speaker 3: 0:15

I am from PRL Purvis Threadman Limited. We are based in Toronto, our head office. We're a Canadian privately owned, employee owned brokerage, insurance brokerage. We have four offices across Canada, including Montreal, vancouver and Calgary, with 160 plus employees to date. Our brokerage writes various types of businesses, including emerging industries and crypto, of course, and AI and tech in general is a big part of this business. Ben is our trusted partner. He is our expert in crypto, ai space and various other spaces as well. He is our gateway to London, so he is based in London. Their brokerage is our partner in terms of reaching out to the Lloyds markets. When we are placing business in Canada, because there are no Canadian markets, he is really the person, the market, that we rely on.

Speaker 2: 1:07

That's a great intro. I love that. I think we should do this more often. I used to hear that intro more often there, dina.

Speaker 3: 1:12

That's great, it's true, you know it.

Speaker 1: 1:15

Ben, it sounds like there's a lot of weight on your shoulders, man.

Speaker 2: 1:18

I don't know if I'm going to live up to this. This is tough, Brad.

Speaker 1: 1:20

Is there anything you would add to that Ben?

Speaker 2: 1:23

I mean no, I think Dina said it all. I mean we've worked with Purvis Redmond for a long time now. We've got a very close relationship with the team there. It's been great to see the Canadian market develop and come into its own from a crypto perspective. Obviously, we've had quite a number of events Great big consolidations in the crypto market, coin-based making a big move into it. So it seems like it's the renaissance of Canadian crypto I think is upon us. Yeah, it's been great working with Dina and the entire team at Purvis Redmond to help them place their clients in the crypto industry into London. Are you?

Speaker 1: 1:51

seeing a lot of Canadian action right now, even though it's a bear market.

Speaker 2: 1:54

Yeah, I think more broadly, I think we've seen our submission count increase, if anything, through the bear market. I would say that the interest for crypto asset insurance has not really waned whatsoever, I think the only thing that has changed as the people actually buying it right. So the interest is still there. But because everybody's tightening their belts, there's been pressure to delay buying insurance until you actually needed or looking to structure your risk transfer in a different way. To the digital asset team. We were at permissionless in Austin, texas, in September and we were just blown away by the relentlessness of the space. Right, it doesn't matter what's going on in the world.

Speaker 2: 2:32

People are still building, people are still really believing in the technology and pushing the space forward every chance that they get. We're, incredibly, still bullish on the entire market. I think what we've found is the people that are in it for the long haul are still here and they're still building and the price will do what the price does. It doesn't really change the underlying use case and the technology and the thing that really makes me believe in this space, and so there's been no change from my standpoint.

Speaker 1: 3:01

How did your paths cross? How did you become so passionate about the insurance side of digital assets?

Speaker 2: 3:07

Great question, and actually this crosses over with Purpose Redmond actually. So I got my start in Canada. So I'm from Toronto, originally from a little town called Aurora outside of Toronto. I was working as a broker in Toronto and actually I got the chance to work with one of Dina's colleagues. His name's Mert. He was my old boss and he kind of showed me the ropes of insurance and he was an absolutely incredible, incredible mentor and we still got a very strong friendship, you know, 12, 13 years later.

Speaker 3: 3:31

So I got to know you Ben.

Speaker 2: 3:33

Yeah, exactly yeah. So I moved over to London eight years ago, so in 2017, I actually got quite sick in 2017 and I ended up taking about six months off work. I was working at an underwriting company in London called CFC and they were very kind to me that they let me take the time off and I had some surgery that I really needed to like function and be a human and that came with time off to recover. During that time off, I remember just thinking to myself you know, I'm going to be damned if this time is not put to something worthwhile. I just couldn't stand thinking that this six months I would just be on a couch and like watching movies and just like doing nothing. So I put my mind and kind of resolved myself to say, well, I'm going to learn something, I'm going to learn one thing and I'm going to put that to work when I get back into my job.

Speaker 2: 4:20

And just so happened that I was on YouTube and a video got recommended to me and it was actually Don Tapscott, who's another great Canadian blockchain figure in this space, and he really kind of opened my eyes to the potential of what blockchain could be and I remember just that sent me down this rabbit hole of crypto. Cryptography, you know behavioral economics, macroeconomics, like everything, psychology, you know. I think if you really get the bug, you kind of just go down this path and start realizing all the different threads that Bitcoin kind of leads down into, and so when I got better and I got into, went back to work, I vowed to myself that this is the thing. I felt like it had given me so much during that time and I wanted to give back to the community. It really kind of lit a fire in me and so I got back to my job.

Speaker 2: 5:06

I ended up doing a bunch of stuff in crypto in the company, ended up leaving and starting my own company called Coin Cover. It's like co-founded that in 2018. I left that to focus more on commercial insurance and that's actually when I got back in touch with with Dina and Mert and the team at Purvis Redmond, because I was establishing the book at SuperScript in London. From the close connection we had with Dina and Mert, I wanted to really work with them and bring those solutions to the Canadian market and so that's kind of been the last four plus years and so, yeah, that's kind of in a nutshell and all the ups and downs that come with with focusing on emerging technology, but it's been. It's been an incredible journey.

Speaker 1: 5:45

So you mentioned Don, is it Don?

Speaker 2: 5:47

Don Tapska.

Speaker 1: 5:48

Don Tapska yeah, Now did you reach out to him or did you read his book? How did you guys?

Speaker 2: 5:53

cross paths, I watched a video on YouTube and then I read his book and that was a thing and I was like, yeah, this is happening, this is gonna happen, this is what I'm gonna do.

Speaker 1: 6:03

Yeah, no, it's cool to see different people in this space and their entry points are like what they kind of discovered in the crypto space first. Now, were you into technology before that or not on your radar?

Speaker 2: 6:14

It's a great question and I think anybody who knows me now and knows me back then would think that it's the most unlikely story for myself, because I was like the worst person at technology. Like, for some reason, like if a spreadsheet would break in my vicinity, everyone would just blame me because I know it was like that bad, but I don't know what happened. Like something just clicked, like I studied music in university actually, so not even anything remotely close to technology or insurance, but what it did is it gave me the tools to like really study a discipline and like get passionate and like put the work in. When I started going down that path, the ability to kind of just like you know, go in a room and practice and learn about something and just kind of do that for hours Something just clicked and kind of just made sense and started going down the path. Kind of going down the path got me into other stuff, like you know, dina mentioned like AI and thinking about the future, where actually these technologies mix quite well, and I actually gave a talk at an artificial intelligence conference in London on how web3 actually fixes a lot of issues in AI and actually having the confidence those emerging technologies allows for a much better and safer future for the development of AI.

Speaker 2: 7:19

I think like that has kind of like led me down this whole path. That's been eye-opening and it's just been incredible to learn all this stuff. You know, I said this actually in my talk we've never lived in a better, more prosperous time in the whole history of humanity, and so it's important to take a step back and actually realize that the time that we live in now, even though there's a lot of stuff going around in the world, we're still in a time where we've got access to education like medical, we can earn a living and stuff and relative peace and freedom. So there's a lot of things that are very positive still today.

Speaker 1: 7:46

I always feel like the best time to be alive is the present with, especially with this. You know, crazy exponential growth in technologies, learning about them and I think your backstory of learning about them and kind of shifting gears and getting a holistic view of different technologies is very critical in today's world the crypto space, the bitcoin space they need people like you because you know you're going to help onboard the masses. You know you're helping companies get off the ground and go in the right direction, where you're going to get global acceptance. Maybe we could shift gears a little bit into that realm. You know why is insurance crucial for companies, especially in the emerging technology space.

Speaker 3: 8:20

Insurance is a way to transfer risk. There are so many ways to manage your risk for company, depending on what, what you do, but at the end of the day, to transfer the risk, once you've done your homework and put your house in order, is, of course, an insurance policy, and with that comes different kinds of building your company, and it evolves with you. So what you need to do is, every year, sit down and just do a risk assessment and think what's going to wake you up at night, what's going to happen that can cost you your company or makes you lose money or impacts your employees or your growth or your future planning or your, your reputation. So these are all kinds of things that you need to consider when you're planning for your business every year Continuity planning and how to move the company forward, or, if you're a company that could be acquired, what would add value to your company. Insurance comes into play in every one of those points, at different capacity depending on what the business is and what people do.

Speaker 3: 9:23

Emerging industries tend to be a bit of a great area for insurers because they are new and every company is different. They're not cookie cutter and their operations and their aspirations are not necessarily same as another company. The underwriters have written we need to understand what they do very well and we need to make sure that, even if the products in the market are not made to cover their exposure, that we tweak them to ensure that every client's exposure is covered. But that goes to Ben's point, that you need to understand your clients. You need to understand that sector. You need to do your homework as a broker to be able to to get into the mind frame of your client in order to do that. So every emerging industry space whether it's green energy, whether it's crypto, whether it was cannabis at the point like every one of these emerging industries tech, pharma you need to really be in it and be a specialist in it to place the business in the best way possible for your client.

Speaker 2: 10:18

Very well said. I think like it's so interesting because people will think, well, so what Like? Why do I need this? Like what's what's the important thing? Like you know, great insurance like so boring, why do I care? Why? Why should I spend all this money on it?

Speaker 2: 10:32

And I think there's a few really like interesting points that today we tell our clients pretty much all the time. So I think the first one is insurance is the ticket at the seat of the table that you don't really know you need until you need it right. A lot of our clients have requirements in their contracts with big web two companies that say you need insurance, and so they won't do anything until they're about to win the contract. And then they try to like get it all in place right when they need it. It often takes longer than they think. There's a lot of different elements that go into it, and so I think that's one. It's it's being able to get those contracts that open the door and allow the company to get to the next phase. It's often needed to get like directors on the board. So you know. Number two it allows your board to attract big names that won't get on to the company unless they've gotten insurance policy in place. And then three, like you know, again, a permission list.

Speaker 2: 11:23

Vitalik Buterin even mentioned risk management in his keynote speech where he said founders should be more interested instead of figuring out how to increase yields from three to five percent, how to manage not yielding negative 100 percent Right. So I think this whole idea of managing your downside risk as a founder isn't actually that intuitive, right? These companies are so interested in just hiring customers, like worrying about their, like private key infrastructure hiring, navigating the market, like there's all the different pressures on, and they're just so focused on going forward that actually looking at your risk as Dina said, looking at your downside risk what could go wrong Is it natural? Because people don't want to talk about what could go wrong. People don't want to say, oh, what happens if this fails? Oh, this is super risky.

Speaker 2: 12:08

But actually, as we found out with FTX, risk management and actually looking at your downside is the way that you have sustained growth and you don't wreck yourself. In crypto speed are already KT, right, you're not trying to get wrecked. And actually looking at downside risk and insurance is a way where you can actually have that sustained growth. And I actually just wrote an article on this where I said that the unlikely spotlight for insurance and insurance being an important thing in the market is actually FTX, because we've seen what having zero risk management protocols and processes look like and it looks like the downfall of the biggest company in the space and the precipitation of a big winter right On that. We've actually seen an increase in people caring about third party risk aggregation issues. So it kind of feels like now is the best time to think about insurance and it's all on everybody's kind of top of the mind with the conversations we're having.

Speaker 3: 13:02

Just to add to your point, ben, it's also financing doesn't come without insurance. Whether you go to the bank, whether you go to private equity, wherever you go, you go to becoming public. In all these directions, insurance is an asset to have and it for banks, of course, it's a must. But when you start working with going public or private equity, they do give it a lot of consideration and it has a lot of weight that comes with it. So it's one of the ways that you're improving your business planning by making sure that you have it. It kind of works both ways.

Speaker 1: 13:33

Why is it like with the whole FTX thing? Why is it so difficult for companies to have a one-to-one asset ratio? They're always drawing on users' funds. I usually tell people, if they're starters and they're not ready to take their own private keys, you can go to BIP by talking about Canadian consolidation. A lot of stuff is kind of consolidating with them. I'm noticing lately. What are your thoughts around that?

Speaker 2: 13:55

It's funny because the reason I'm laughing is because I actually mentioned it in the article, and the reason why it was so hard for companies like FTX or Alameda or Celsius you know any of the other ones is because it's boring. Oh, it doesn't generate the yield that's attractive, right? The fundamental thing that they tried to do was incentivize people to use their systems, platforms, business, because the yields are so big, and people were expecting these higher yields because the DeFi yields are so big right, you're getting 20, 30% being a yield farmer in DeFi back then. And so for these centralized companies to compete, they had to get really creative. They just took people's money and gambled it elsewhere. What they did is they traded short-term gain for long-term exposure for them and everybody that touched their business. And so it's interesting to kind of see how that played out, where, actually, risk management was the thing that killed every one of those companies. That was the thing that killed everything.

Speaker 2: 14:52

And if you actually look at DeFi, so like coded rules where everything is transparent, we didn't have that problem, like everything worked as intended. And so there's this whole conversation that I think we should have as a community where technology started to bring more transparency to financial services. I mean, there's a lot of things that Bitcoin has done, but that's ultimately what it was supposed to do, is supposed to clean up what happened in 2008. And all we've done with those types of companies is just replicate it even worse, because we've had really opaque companies that could do whatever they wanted with client funds with little to no oversight, and that's what happened. And so I think the future is something where an on-chain environment, where transparency is key for a good functioning business in this space, is going to be absolutely paramount.

Speaker 1: 15:37

Yeah, absolutely Like the downside of FTX, like rippled through the industry, like what regulatory developments have you seen then? Like after, since all that?

Speaker 2: 15:45

great question. I think every key jurisdiction has done something differently, but they're all kind of coinciding on the same type of point. So you're seeing Hong Kong, you're seeing Vara with DeFi and then Abu Dhabi with the ADGM regulator. You're seeing Mika in the EU. Uk just released the financial promotions regime. Us is doing what the US does.

Speaker 2: 16:07

But I think there's obviously there's going to be something coming down the pipe in the in the future, and all of them are stating that you need to separate out custody from an exchange. It's following in lines with traditional financial institutions, where you can't both custody assets and trade it. You have to separate that out into two different companies. So I think that's that's something that we're going to see. Just from the insurance perspective, I think all of them have mandatory insurance limits, and so that's one of the things that, like you know, dina, myself, we're really excited about, because if you want to take this space seriously, you want to be regulated, you're going to need to be under it, you're going to need to open up the books and talk about risk management, and this is a conversation that's going to need to be happening a lot more.

Speaker 2: 16:48

I mean sorry I didn't mention Australia. Australia is quite, quite big and they're going through the wrong kind of consultation right now, and so the whole world is going to regulate this industry in some fashion. I do still think there will be regulatory arbitrage between the different jurisdictions that coincide with the different companies, that an exchange might gradually and gravitate more towards the UAE, while maybe a custodian gravitate to the EU. We don't really know yet how that shapes out, but I do think that there'll start to be more consolidation in territories and jurisdictions on certain types of businesses.