Zero Hash’s ‘Mission Trust’ panel talks ‘Operation Choke Point 2.0’

FinanceFeeds Editor-in-Chief, Nikolai Isayev, joined the Mission Trust community, powered by Zero Hash to learn first-hand what the community’s purpose is and the important role it plays in building a sustainable future for crypto.

The genesis of Mission Trust is to help re-establish trust that was undercut in 2022, by bringing together and aligning the entire ecosystem on shared high standards, a regulation-forward mindset and values-first thinking.

On the 12th April, in New York, the Mission Trust community came together to discuss how the crypto industry can restore trust with regulators and banks, despite the intense regulatory scrutiny and the increasing regulation-by-enforcement practice.

The event was attended by crypto-natives, banks, fintechs, payments networks and even former regulators. Companies who joined included Amazon, Bank of America, Citi, Fidelity, StoneX, Google Pay, SoFi, Brex, Blockchain.com and many more established institutions.

The event kicked off with a panel discussion, which mostly focused on regulation in crypto, and the rumored ‘Operation Choke Point 2.0’ of banks and how there are unintended consequences of heightened concentration risk .

 A panel of industry leaders

Zero Hash co-hosted the second Mission Trust event in New York in partnership with Checkout.com. The panel included:

Edward Woodford, Founder and CEO of Zero Hash: a B2B2C embedded infrastructure platform that allows any platform to integrate digital assets natively into their own customer experience;

Mark Fernandes, Head of Crypto Product at Checkout.com: a global payments solution provider that ​helps businesses and their communities thrive in the digital economy;

Sami Start, Co-Founder and CEO of Transak: a Web3 onboarding infrastructure provider, covering KYC, risk monitoring & compliance, payment methods and customer support;

Matt Homer, former Executive Deputy Superintendent at NYDFS and current Managing Member of the Department of XYZ: a venture capital firm that invests in pre-seed and seed stage companies building new economic systems.

Moderating the event was Bradley Riss, Chief Commercial Officer of Checkout.com.

Besides hearing practical stories from such industry leaders, the audience learned more about how to communicate with regulators, especially by working together and unifying their voices to support the development of a safer, secure and stable crypto economy.

‘Operation Choke Point 2.0’

Checkout.com’s Bradley Riss kicked off the talk by asking about the alleged ‘Operation Choke Point 2.0’. Matt Homer, who previously ran the crypto licensing and supervision area of the NYDFS, explained the original name of the operation goes back a decade: it was an effort by Prudential regulators that made it difficult for banks to service high risk customers. Now, we’re seeing something similar, hence the name.

“The thing to understand is that regulators are definitely […] imposing more scrutiny over their banks and the relationships they have with cryptocurrency related firms”, he said, reminding that the Fed, the OCC, and FDIC put out a joint statement earlier this year, which claimed that open public decentralized networks are fundamentally incompatible with safety and soundness in the financial system.

“…A pretty absolute statement to make and one that will probably not look great over the course of history”, Matt Homer commented. “That’s having a huge effect on banks […] and their ability to bank customers”, as there’s no prohibition on serving customers “but regulators are basically saying ‘we’re gonna really scrutinize any decision you make’”.

Transak’s Sami Smart added that it seems like there’s something more going on in regard to how Silicon Valley Bank, Signature Bank, and Silvergate were shut down, like they might have been targeted for being close to the crypto industry. This implicit way of regulating, much like in India, and unlike the UK or Singapore, “is very hard for companies like Transak to navigate”.

Zero Hash’s Chief Executive Officer, Edward Woodford, reminded that the three banks had different underlying causes for their failure.

Checkout.com’s Mark Fernandes highlighted the risk of concentration in crypto, much of which is happening in reaction to the regulatory environment in the United States, and the need to talk with regulators and banks about the issue.

In the wake of the ‘crypto winter’ we might also be seeing a paradigm shift from speculation to utility. Zero Hash’s Woodford noted that “people are taking a slightly more conservative approach in terms of the assets that they want to support”: the Big Four.

Transak’s Sami Start, however, noted his firm is seeing a more diverse range of sources of volume as well as more cases around utility, namely demand coming from gaming.

“Something’s gotta give”

Are regulators and lawmakers informed well enough about what crypto/blockchain actually is? Matt Homer, the former regulator who founded the Department of XYZ, says it depends on the regulators and lawmakers. “I think most regulators are now pretty smart on the issue actually”, he said, noting that they have a rationale or justification in their heads for their opinions, and that the path forward is through transparency. “It’s through putting in place the good governance practices that you would expect for public companies […] That boring stuff is really important”.

Are the existing regulatory frameworks sufficient for the crypto industry? Zero Hash’s Edward Woodford used Coinbase as an example: a firm that has solid corporate governance in place, but is still under intense scrutiny from theSEC.

Woodford went straight to the point: “politicians listen to who gives them money” and “it’s not that hard to get face time with politicians. It really isn’t”. So, how to move forward? “I think the Howey Test needs to be updated”, he said, pointing that Congress is looking at that and must differentiate between security tokens and utility tokens.

Matt Homer added that regulators on the federal side are not focused on keeping up with best practices and engaging in public comment, and that’s unfortunate, especially because concentration risk is heightened without proper guidance. “Something’s gotta give” and we’ll have more clarity that comes out of it.

With the European Parliament about to vote on the MiCA (Markets in Crypto-Assets) regulation, the panel spoke about the positives of clarity in the European Union, albeit “a lack of comfort in how regulators look at stablecoin”. To end the conversation, the four panelists shared their enthusiasm in regard to use cases in payments, commerce, gaming, and more.

“Regulation is necessary condition for success, not sufficient condition for success”

Speaking on the sidelines of the ‘Mission Trust’ event, Edward Woodford told FinanceFeeds Editor-in-Chief Nikolai Isayev that he learned early on that “regulation is a necessary condition for success, but not sufficient condition for success”.

Zero Hash follows the B2B2C partnership model as most startups in fintech. The same way Brokerage-as-a-Service and Banking-as-a-Service exist, the company provides a Crypto-as-a-Service.

“My view would be ‘use it as a service provider and at some point if you really want to move off and get regulated yourself, then go do that. It’s about realizing that regulation gets you to the start line, not the finish line”, Woodford explained, adding that firms can tap Zero Hash in order to move a lot more quickly than applying and waiting for regulatory licenses for themselves.

Woodford also spoke about how much of regulatory compliance in the digital asset space is based on precedent, a lot of it being set by relatively small fines. “The reason why groups in the US don’t offer leverage in the United States on crypto is because of the retail leverage transaction rule of the CFTC”, he said about a case settled with a $75k fine in 2017. No courts involved.

The case with Coinbase is that regulators have now gone so much to the core of what the crypto exchange is, which is forcing them to meaningfully push back, the Zero Hash founder continued, adding that he shares the frustration of Coinbase and others.

It is no secret that much of the crypto community in the United States is moving at least parts of their operations offshore, but there are risks associated with it. Staking, for example. “Do you want this very core infrastructure to sit outside of the US? What’s the end goal? So that crypto does not exist in the US? What are you trying to achieve?”, he indirectly asked regulators.

First ‘Mission Trust’ took place in San Francisco

In February, FinanceFeeds was not there to cover the Mission Trust event in San Francisco but fortunately it was recorded on video and published online.  To watch the video, click here.

The panel counted with Zero Hash’s Edward Woodford, Nyca’s Tom Brown,  Plaid’s Tracy Meng, Nium’s Joaquin Ayuso, Juno’s Andre Herrera, and Zero Hash’s Candance Sjogren.

What about consumer trust towards crypto?

During the Mission Trust event in New York, Candace Sjogren, SVP Global Head of Sales shared that Zero Hash has recently commissioned a consumer trust sentiment survey, with 3,000 consumers across the US, U.K, Australia and Brazil. She highlighted 3 key early learnings from the research:

1. Nearly half of respondents have lost trust in crypto exchanges.
2. Two thirds of consumers would choose an existing financial provider to invest in crypto if the provider offered the ability to.
3. Reputation is the No.1 factor for consumers when selecting a company to buy and sell crypto, not price.

Finance Feeds enjoyed joining Zero Hash and the Mission Trust community wished the community well in its purpose to rebuild trust in the crypto industry.