The sun is shining this morning in London. The buildings of Canary Wharf, the business district located in the east of the British capital, are flooded with a clear light that highlights the big names of finance: HSBC, Citi, StateStreet ...
We have an appointment for a coffee ☕️ with the banker of one of these global giants.
Nick*, who wished to remain anonymous, is not a banker like the others. He is one of those "traditional" bankers who work on projects related to crypto-currencies. These are mostly projects concerning trading and custody of digital assets (crypto and NFTs).
Because of recent scandals, including FTX, and the sharp decline in the markets, he has been rather quiet in recent weeks. "We've seen easier times," he smiles. 😅
Not easy, indeed, to work in crypto right now, especially within a banking institution. But beyond this tricky period, Nick is optimistic because things are moving across the Channel. "We finally have a government that wants to accelerate on cryptos. That's a great thing," he welcomes.
In fact, while some countries such as the United States have decided to take a harder line - Kraken has just been sanctioned by the SEC - the discourse is radically different in the country of King Charles III.
The recent arrival of Rishi Sunak in power is obviously not for nothing.
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The new Conservative Prime Minister, who started his career at Goldman Sachs (he's only 42), is an outspoken supporter of cryptos. "He's someone who comes from finance, he understands that crypto is not a fad," Nick points out. "These technologies are going to have a huge impact," he adds.
That's why Boris Johnson's former finance minister has just launched a major effort on financial regulation, of which cryptos are an important chapter.
The objective of this construction site is clear: to attract Web3 investors, their billions of dollars, and create jobs in the country. 💰
According to CryptoUK, the UK's leading trade association for the sector (with over 100 member companies), London could create several thousand direct jobs in the sector in the coming years.
A figure that has obviously not escaped Rishi Sunak who wants, like his predecessors, to erase some of the consequences of the Brexit that has made the country lose some of its jobs, especially in finance.
"With the Brexit, the UK has lost some of its attractiveness, so we need to find new levers, and crypto is an excellent one," confirms George Morris, a lawyer at Simmons & Simmons.
What could this regulation look like?
For now, little has leaked out about the first draft of the UK government's future regulation. 📝
According to the first elements, the text is based on the main principles of the European MiCA regulation, which the European Union must finally adopt in April. " MiCA is a very good basis", explains George Morris.
The idea for London, however, is to make the text "even more complete", according to several lawyers and consultants, notably by integrating decentralized finance and NFTs, and above all by trying to be a little more flexible. "Otherwise it would not be of much interest," says Ian Emerson, partner at Fabric Ventures, a London-based fund specializing in Web3.
With Ian Emerson (Fabric Ventures)
The government has just launched a public consultation on the subject. It will last two months. "All the actors of the ecosystem can contribute and make their proposals", explains Diego Ballon Ossio, partner in the law firm Clifford Chance.
After this consultation, which should be completed in April, the government will take over, judge what has come out of it, and possibly amend its first draft.
The executive will then pass the file to the Financial Conduct Authority (FCA), the British stock market regulator, which also has the power to legislate on financial matters. Unlike its French or German counterparts, the FCA is not just an administrative authority. 🧐
If the timetable follows its course, the UK regulation could come into effect in 2024 or 2025. "No one will admit it, but there is a form of time trial with the European Union," says the head of a London-based fund.
The MiCA regulation is scheduled to go into effect in 2024 (with exemptions until 2026 for certain already registered players). ⏳
No matter what happens companies that want to go to the EU will have to comply with MiCA. "The Brexit gives the UK more flexibility, but they also lose the advantages they had by being in the EU," says a French lawyer.
Meanwhile, a recent study by "Recap", a British crypto company (important to note), ranked London as the most "welcoming" city on the planet for crypto. It is ahead of Dubai, New York and Singapore.
The first city in the EU is... Paris. The French capital ranks 8th.
The study has caused a stir in the UK ecosystem. "A lot of people seem to be discovering that the UK, and especially London, is not starting from scratch and that there is a crypto ecosystem already there," laughs Jeremy Obadia, head of derivatives at Ribbon Finance, a decentralized finance protocol based on Ethereum. 😏
Without yet talking about a "crypto hub", London is indeed far from being behind.
Several exchange platforms of American origin such as Coinbase and Kraken have European offices in the British capital. The world of NFTs is also dynamic. "We organize an event every month and there are hundreds of people who come", underlines Mila Lolli, founder of NFTUK, an organization whose objective is to acculturate to Web3 topics (see her interview below).
DeFi on British time
But beyond all the activities related to the buying and selling of crypto-currencies or NFTs, the big strength of the UK ecosystem is clearly on the side of... decentralized finance (DeFi).
While there are no official numbers, a significant portion of startups and crypto projects like Valk, a flow monitoring system on DeFi, gravitate to this universe. "The majority of the big players in DeFi are in London," points out Antoine Loth, co-founder of Valk.
This is notably the case of the giant Aave. A large part of the team is based in London, including Aave Limited, the commercial company responsible for developing applications on the protocol of the same name.
Several London-based banks and investment funds are working with the protocol teams launched by Stani Kulechov (read his interview). 🏦
"I have created three start-ups in London, there is a huge concentration of talent and investors," blows Itamar Lesuisse, creator of the DeFi Argent wallet (one of the most innovative in the sector, ed. note) "The legal system is very conducive for start-ups, not to mention the fact that there is a huge amount of FinTech innovation here," he continues. "Seen from the UK, you can feel a shift for French startups, but London is still far above in terms of access to funding."
The capital 🇬🇧 also hosts most of the market makers in the ecosystem. Market makers are very important players as they provide liquidity to the different exchange platforms.
In London, there are the biggest specialists in the sector, such as GSR and Wintermute, which have an excellent reputation. "They are among those who have totally survived the crashes of Celsius or FTX, it is not a coincidence," explains a person close to Aave.
This strong position of the UK on DeFi is quite simple to understand. "London is a hub for traditional finance. Here, there are all the best profiles (including many French 🇫🇷), so it's normal that decentralized finance is developing so much," explains Olivier Legris, founder of CVRE, an agency specialized in Web3.
It is for these same reasons that players such as Revolut, at the forefront of access to crypto investment for the general public, or Monzo, are based in London.
Until now, this ecosystem has developed under the radar. The challenge for Rishi Sunak will be to continue to grow it in a more regulated world. From this point of view, the recent debates around the MiCA regulation show how difficult it is to find this balance...
We'll tell you the rest next week!