Founders’ Fireside Chat on DeFiance Media

As Anchorage Digital enters its fifth year, Co-Founders Diogo Mónica and Nathan McCauley sat down with DeFiance Media for a fireside chat to reflect on Anchorage’s origins, the platform’s evolution, and their vision for the future of digital assets.

Watch the fireside chat to learn:

• How Diogo and Nathan came together to found Anchorage, based on their shared background in security and distributed systems.
• Anchorage’s growth as a qualified custodian to offer a full suite of services via our regulated platform, including staking, governance, trading, lending, APIs, and more.
• How we are enabling greater institutional participation in and access to digital assets, worldwide.
• The power and potential of crypto, Web3, and decentralized finance to improve the financial system.

Video:

Transcript:

00:12:13–00:15:01

Diogo: My name is Diogo Mónica, co-founder and President of Anchorage Digital.

00:15:07–00:20:05

Nathan: I’m Nathan McCauley, co-founder and CEO of Anchorage Digital.

00:00:20:05–00:00:28:28

Diogo: Anchorage Digital is a regulated platform that provides institutions, both the prime services and the infrastructure that they need to build products in crypto.

00:28:29–00:40:10

Nathan: We serve institutional investors, banks, fintechs, broker dealers, anyone who is looking to take an investment in crypto assets or who is looking to build products in crypto assets.

00:41:02 -00:47:15

Diogo: We do custody. We do trading. We do staking, governance and integrate deeply with all these different blockchains.

00:47:22 -01:22:08

Nathan: We provide the infrastructure layer for them to be able to participate and build and achieve their objectives within that space. The thing that became very clear very early on in Anchorage’s evolution was that crypto assets themselves were going to increase in complexity more and more over time. And the rate at which the complexity was going to increase was going to be more and more over time, which suggested that a fundamentally different way of holding assets, a fundamentally different way of custodying assets was going to be necessary.

01:23:00–01:41:25

Nathan: And so the product innovation was extremely solid key management infrastructure to safely hold the keys attached to comprehensive biometric, behavioral and blockchain analytic authentication processes.

01:43:00–02:01:13

Diogo: Custody in crypto is very distinct from a traditional world. It is a highly technical endeavor. You require deep technology to safekeep tens of billions of dollars or even hundreds of billions of dollars of irrecoverable private keys. And so that is a very high technical challenge that had never really been done before.

02:02:02–02:35:17

Nathan: The custodial system we built is there to enable all of that, all of that complexity, all of that innovation that is happening. And so what we’ve done is built a hardware security module based security system that is authenticated with a comprehensive set of biometric authentication. The authentication system we’ve built at Anchorage is a combination of biometric authentication, behavioral authentication, geographic authentication, all of which comes together to enable extremely fast transactions within the system.

02:36:03–03:00:23

Nathan: And the speed at which we’re able to do those transactions is there to enable fast access to crypto assets. Crypto assets are not bearer assets. They’re not an asset that kind of sits in a system and is inert and doesn’t do anything. They are flexible. They are software assets where you want to stake. You want to participate in governance, you want to deploy and DeFi.

03:01:15–03:09:16

Nathan: And so the whole security system that we’ve built is there to enable flexible, thoughtful usage of the assets while remaining safe, secure and regulated.

03:09:26–03:34:28

Diogo: Our clients come to Anchorage for several reasons. The first is the fact that we have a vertically integrated set of products. We offer custody. We offer execution, lending, staking, governance, all from a single platform, a platform, by the way, which is regulated as a federally chartered bank. And that’s extremely important for our clients, too. We have a long track record and some of the largest clients in the world on the platform.

03:35:05–04:11:29

Diogo: And we have proven that we continue to innovate in the form of adding new assets and new integrations with, for example, DeFi protocols. We started out by serving venture capital firms in crypto funds three to four years ago. Those were the main institutions that were part of the market. But today, it really is any kind of institution, anywhere from large bulge bracket banks to asset managers to some of the largest corporates in the world, to fintechs, to exchanges, miners, endowments, sovereign wealth funds, every single institution that wants to participate in crypto and requires a regulated partner can use Anchorage.

04:12:09–04:44:06

Nathan: And the good news with Anchorage is that we have a lot of employees who we have a responsibility to. We have a growing set of clients that we have responsibility to. We also think that we have a responsibility to the crypto ecosystem at large. DeFi is a movement to look at a reimagining of how we could build trusted transactions between individuals, between counterparties and the movement that is going on within DeFi is one that is one of experimentation, of fundamental optimism about ways to build better systems.

04:44:07–05:12:18

Nathan: So we have individualized teams that understand directly what a client is looking to do, whether that’s an investment fund, helping them get into positions, get out of positions, make trades, and they might need all the way to banks, brokers and fintechs that are looking to integrate with us, that need a comprehensive set of integration specialists, client relationship specialists, and analysis of how to take this product to market.

05:12:24–05:39:07

Diogo: Anchorage has a unique approach to DeFi, decentralized finance. For us, decentralized finance are the primitives, the building blocks that are being built on decentralized infrastructure and blockchains that allow you to compose Lego blocks and create new financial products. Anchorage allows institutions to access the DeFi worlds. We allow institutions to take advantage of yields or deeply participate in these opportunities in these projects.

05:39:24–05:59:13

Diogo: And we do so with our unique technology and with our regulatory clarity. Anchorage allows institutions to access different worlds. We allow institutions to take advantage of yields or deeply participate in these opportunities in these projects. And we do so with our unique technology and with our regulatory clarity.

06:00:02–06:25:13

Nathan: We have quite a number of investors that are looking to participate in that space, and we ourselves look at the DeFi space as one that will very naturally meld and mold the way that traditional banking is done. And we’re looking to be one of the forerunners there and integrate DeFi in ways that are true to the DeFi ethos while also being regulated, compliant and thoughtfully built so that institutions can take part.

06:26:01–06:56:22

Diogo: Institutions are very interested in stable coins and proof of that is how fast they have grown over the past two years. The reality is that the traditional financial system still requires T+2 for traditional transactions. And if you were thinking about anything that is international and its cross-border, potentially even T+5. Five whole days to transfer value from point A to point B, crypto solves this by allowing it to be the same speed, sending value from point A to point B as if you were sending a picture to someone.

06:57:02–07:15:10

Diogo: And of course, this changes dramatically what is possible in institutions business. So there are quite a few corporates in fintechs that are coming into crypto, not because of Bitcoin, not because of Etherium, but really because stable coins allow them to gain efficiencies in their core businesses in the form of instant settlements.

07:17:21–07:41:19

Nathan: Crypto as a movement has several very large trends. The first trend really was this initial institutional adoption that happened kind of 2017, 2018, and then you see several trends coming through after that. The first big one was kind of this move to proof of stake blockchains, thinking about ways to make blockchains more efficient, more scalable.

07:42:14–08:04:06

Nathan: And then we see the rise of DeFi. Now we’re seeing the rise of NFT. And so what’s really exciting about being in the crypto space is that this feels like an infinite game. There’s going to be a ever increasing number of large trends, large movements where more and more of software, more and more of finance are moved into the blockchain and crypto ecosystem.

08:04:17–08:09:04

Nathan: And improved and thoughtfully rebuilt in a way that is more fair. More equitable and more global.

08:09:20–08:35:06

Diogo: What we’ve done since day one, since inception, we have engaged with regulators in the crypto assets space, and we have told them and shown them exactly what we’re doing and why it protects consumers and why it protects institutions that are the ultimate clients of Anchorage. Anchorage was created as a platform, that means that we can do anything that a blockchain supports.

08:35:06–08:56:02

Diogo: One of the things that has been very popular lately have been non-fungible tokens, NFTs. NFTs are interesting in the sense that they actually brought a different type of person into crypto. People were excited about the fact that artists found a new way to monetize their work. Musicians found a new way to monetize their music. That has actually brought the fans into crypto.

08:56:07–09:03:05

Diogo: And when the fans got brought into crypto, all of these fintechs, institutions and banks took note and they also want to participate.

09:03:16–09:26:24

Nathan: Anchorage Digital is here to allow institutional participation in the digital asset ecosystem. We want to allow institutions to buy, hold, sell, borrow, lend digital assets and we want to enable banks, brokers, fintechs to build products in the digital asset ecosystem. The whole goal here is mass adoption on the retail side and on the institutional side of digital assets.

09:27:04–10:01:26

Nathan: And we want to be a thoughtful, regulated partner to allow all of that innovation to take place and get distributed to as many people as we can. I really want to do everything I can to facilitate mass adoption of crypto assets. I want as many Americans, as many global citizens as possible buying digital assets participating in this economy and really achieve the goal of shared ownership of these assets.

10:04:26–10:49:21

Nathan: Anchorage’s contribution there can be pretty profound, in that we can be an enabling technology to banks, brokers and fintechs who are looking to deliver offerings to their client base. I want it to be easier and more trusted to come into the digital asset ecosystem and Anchorage’s mission there is to help enable that evolution. Second area is that Anchorage is a federal bank, and so we’ve received a federal bank charter from the OCC and so the regulatory oversight that is on us gives our clients confidence that they can build products, features and offerings on top of a regulated, trusted, compliant infrastructure.

10:49:28–10:52:20

Nathan: As the first federal bank within the country.

10:54:05–11:18:00

Diogo: So what I think is fascinating is that these DeFi building blocks, these primitives around stable coins in yield generation are creating a new wave of companies that are raising funds and stable coins. They are paying employees in stable coins. They’re creating checking account and savings account equivalents that are not regulated, but they’re effectively the same type of primitives.

11:18:09–11:28:02

Diogo: They’re issuing credit card credentials, visa credentials that you can spend your cryptocurrencies on in a coffee shop and all of it wrapped in a neat, beautiful consumer application package.

11:30:07–00:11:58:16

Diogo: Anchorage was a set of curious coincidences over the past 15 years. For my personal background, I was actually working on something that was not particularly useful 15 years ago, which was a Ph.D. in security and distributed systems. And lucky enough now, I was working on papers and publishing academic papers on things like hash-cash, and presenting full tolerance and distributed randomness, which are the actual core concepts that blockchain uses.

11:58:21–12:21:06

Diogo: And that the Satoshi Nakamoto White Paper actually solved. The civil attack and civil problem on decentralized systems. So it was that academic experience and that Ph.D. that uniquely attracted me to when Bitcoin came out and the first time I heard of it in 2011 that I immediately attached to the concepts because I had been working on them from an academic experience and then the rest of it was just a sense of a set of coincidences.

12:21:13–12:40:21

Diogo: I ended up joining a company called Square about 12 years ago, the same week as my now co-founder, Nathan McCauley, and so we joined the same week. We were very early at Square. We built a lot of the security systems that Square still uses today to move hundreds of billions of dollars of credit card volume on the other systems.

12:41:04–13:02:25

Diogo: And so it was there that we both first met each other, realized that we had the same set of values, the same set of ambitions, always wanted to start a business, and both of us were security engineers, and so we were working on effectively similar systems that we now get to work on at Anchorage. And so a set of coincidences led me to study the academic realm of distributed systems through blockchains, and have real world experience in payment systems at Square early on. Move over with my co-founder Nathan to a company called Docker, where we led the security team in both systems that run on over half of the Internet and then finally having the opportunity of realizing that all of these crypto funds and venture funds investing in crypto in 2017 were incredibly sophisticated investors who were not very sophisticated when it came to security.

13:29:15–13:36:04

Diogo: So did not have the capabilities to actually custody and invest in crypto assets safely. So that is the problem that we set out to solve.

13:36:17–13:53:21

Nathan: When we look at 2022 and what we really hope happens throughout this next calendar year, we are really looking at even more mass retail adoption of investments in crypto assets, investment into NFTs and thoughtful participation in the whole crypto movement.

13:53:26–14:13:15

Diogo: At a high level for 2022, it is very clear that institutional adoption will increase and that is not really a prediction. We have an unfair advantage because we see these institutions and we’re working with them to build products in crypto and when an institution decides to build something, it usually takes about 18 to 24 months to actually get to market.

14:13:23–14:33:02

Diogo: So the reason why we know that 2022 is going to be a great year for crypto assets and for institutions coming into crypto is because we’re helping them get there. And so that is, you know, a prediction that is easy for me to make because we’re actually the ones helping it come true. Other predictions that I think are interesting have to do with stable coins and with effectively the world of DeFi itself.

14:33:09–14:52:14

Nathan: Anchorage wants to be an enabler for that. We want to help deliver crypto assets via banks, via brokers, via fintechs. We want to see the proliferation of digital assets to as many Americans as we can and globally, and really be an enabling technology that can accelerate the mass adoption of crypto assets.

14:53:01–15:19:09

Diogo: Every single financial institution is now becoming a crypto institution, and that is incredibly interesting because they are being forced to adopt these crypto products. Consumers want to access crypto and institutions realized that is a great way to keep the engagement with their users to generate new revenue streams and obviously to make sure that the markets give them a higher multiple for having a good blockchain strategy.

15:19:18 -115:40:02

Diogo: And all of this never really touches fiat and never touches the euro or the US dollar and so the rate of innovation of these companies is just absolutely tremendous and we get to see it because we get to help them come into crypto. For 2022, an easy prediction is the fact that institutions are coming in in an even more meaningful manner than they’ve come in the past.

15:40:11–00:16:00:27

Diogo: And the reason why this is an unfair prediction is because we are helping them do so. And so we know when these projects and these products will actually come out. Institutions take about 18 months to 24 months to get a product to market and they have really started in 2020 and 2021 to build new types of systems and they will actually come to fruition in open access in the next year to come.

16:01:15–16:45:18

Diogo: Another interesting prediction is the fact that there’s all of these services being created, deep consumer experiences that allow consumers like you and I to access banking-like services without ever actually touching dollars. The reason why that’s interesting is because these products are iterating at the pace of blockchain, allowing instant transfer of money, allowing all of these different products in a beautiful experience, all on your phone and on your application in a way that traditional banks simply can’t emulate. These products are iterating at the pace of blockchain, allowing instant transfer of money, allowing all of these different products in a beautiful experience, all on your phone and on your application in a way that traditional

banks simply can’t emulate. So that is incredibly exciting. And it’s a phenomenon that is going to happen in 2022, definitely accelerating in a meaningful manner.

16:53:07–17:16:10

Nathan: Definitionally, Anchorage is a safe place to take harbor. It’s a safe place to rest. And our first product was a custodial product that allowed safe, secure storage of assets. And so we thought Anchorage was a good kind of metaphor for safe storage, safe harbor to place your digital assets.

17:16:23–17:37:09

Diogo: Anchorage is the first and only federally chartered crypto bank. We have both the technology and the highest regulatory scrutiny, and that is very unique in the market. The goal of Anchorage is to bridge traditional financial institutions and the crypto world in one of the ways that we do so is actually transforming fiat U.S. dollars into stable coins and back and forth.

17:37:21–17:57:06

Diogo: We don’t believe that crypto will replace the traditional industry, but we believe that will bring competition. And competition is extremely important because it creates better products for you and I. And so that is the goal of Anchorage. It is to create this portal, regulated on the side of traditional financial worlds and deep technology on the side of the blockchain world.

17:57:19–18:09:25

Nathan: The thing that became very clear very early on in Anchorage’s evolution was that crypto assets themselves were going to increase in complexity more and more over time.