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Ep 67: Forward-Looking Crypto Policy
58 Plays26 days ago
What does good crypto regulation look like when the technology keeps moving and the stakes are real? Maha El Dimachki (GFTN) to talk about the gap between blockchain and crypto in policy conversations, the importance of proportionate regulation, and why useful engagement between regulators and industry depends on trust, tension, and clarity. We also get into policy coordination, experimentation, and what still is not getting enough attention. This one is for anyone interested in how serious institutions think through innovation.
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Transcript
Introduction to Policy Layer Podcast
00:00:06
Speaker
Welcome to the Policy Layer, where we talk about the real decisions shaping crypto, tech, and the future of trust. I am Silvia Sanchez, your host from the Avalanche Policy Coalition. We aim to bridge the gap between the builders of Web3 and the people that are shaping the rules. On our podcast, you'll hear from policymakers, developers, academics, and others working at the edge of tech and regulation.
00:00:32
Speaker
We ask the questions that everyone's actually wondering and we keep it easy to follow. This is the Policy Layer.
Focus on Crypto Policy with Maha Eldimashki
00:00:43
Speaker
Hi everybody, today's episode is all about crypto policy, but not in the usual, what are the rules kind of way. Today our special guest is Maha Eldimashki, who now leads the advisory business at GFTN and has spent years working working can go on financial innovation, blockchain regulation, and the bigger question of how institutions make smart decisions in these super fast moving environments.
00:01:09
Speaker
We're talking about what still gets misunderstood in crypto policy, how good regulation gets built, and what forward-looking policymaking looks like when the technology keeps moving at this pace. So, Maha, welcome to the Policy Layer. Thank you very much. It's a pleasure to be here. Thanks for having me. Of course. So let's start with you. What pulled you into the blockchain and digital asset space in the first place?
00:01:32
Speaker
Well, what can I say? I don't really have an elaborate story. i mean, I'm a long-term resident of the payments ecosystem. it's ah It's a great community. It's where I built my career in and around payments, working capital, you know um corporate banking, the working capital cycle, etc.
00:01:54
Speaker
And simply being part of this ecosystem, when when Bitcoin sort of rose through the ranks and we started to see that we're called cryptocurrencies, right? I think people just assume that because there's the word currency, it must be related to money. Therefore, it must be related to payments. Then, you know, a lot of questions came my way. And and so I learnt. learnt about it. I got myself immersed in it. And that's really how I...
00:02:21
Speaker
sort of got into the blockchain sort of space. It's it's just by by coincidence, by chance, if you like, but I'm really pleased that that happened. I've learned a lot. I love being here.
00:02:35
Speaker
Amazing. And I think that also, once you start working on this space seriously, I think um more than learning about the technology and everything that's happening, when if we look at it from the policy angle, we also start seeing What can be improved?
Misconceptions in Blockchain Policy
00:02:51
Speaker
What's going well? So just moving towards that angle, what do you think people still most misunderstand about blockchain when they approach it from a policy angle? Again, you mentioned that it could be assumed that it's all a financial instruments just because it has an encrypted currency, but looking at blockchain at a higher level, what do you think could be improved? Where do you think that the starting assumptions are still off?
00:03:18
Speaker
Yeah, I mean, there's a few sort of gaps still in in sort of the knowledge and understanding. I think you know there's some general ones and some specific ones. And perhaps I'll take it from the policy set of perspective to start with. I think you know the understanding what blockchain is, um you know, is improving.
00:03:38
Speaker
You know, it's what when I look at what it looked like, you know, two years ago, policymakers knowledge two years ago to to today has really come up the curve in a big way.
00:03:49
Speaker
They still, though, you know, there's an association of the technology with the actual, you know, product. So, you know, the the currency, the tokenized asset, the digital asset.
00:04:01
Speaker
um And that, you know, there's still a little bit of a blockchain means crypto, right? Or cryptocurrencies, right? It means Bitcoin. When actually blockchain is the underlying technology.
00:04:13
Speaker
And there's so much more that can be done with it. That is not necessarily just about, you know, tokenizing assets or, you know, trying to transfer value from a to B.
00:04:25
Speaker
So that's one thing. I mean, really kind of coming down to to what the technology is and what it's capable of doing, you know, in and outside of financial services. The second is think it kind of assumes in financial services that it's actually about currencies or assets being represented in tokens. But that's only one application. So you can use the technology for many other applications. The peer-to-peer technology, you know, gives that gives you quite a lot of you different use cases that you can solve for.
00:04:58
Speaker
You know, the ability to to use smart contracts and programmability is is really is really interesting in this space. So one thing that I looked at when I was at the Bank International Settlements, I was the centre head for the innovation hub in Singapore.
00:05:14
Speaker
We actually looked at how do we streamline and automate compliance processes to programmable compliance. but So it is really about the compliance ah layer in in the financial system rather than the the movement of value.
00:05:30
Speaker
and that was yeah where we looked at you know using P2P technology and using privacy preserving technologies. And then the third is there's this misconception that, you know, blockchain sits in a world on its own.
00:05:43
Speaker
And it doesn't have to be. It can be integrated into traditional applications and the infrastructures that we have today. In fact, the programmable compliance proof of concept that we but that we delivered, we delivered it in a modular fashion where it can work with the centralized traditional finance centralized system as well as decentralized.
00:06:01
Speaker
And that's kind of your general kind of misconceptions that still exist. The specific one ah I would say is from, you know, from a regulation perspective, we try to shoehorn this into existing regulation.
00:06:14
Speaker
And it's okay in some cases, but I think we need to be careful because a centralized system with its intermediaries, is the liability where we're at that since how the risk shifts is very different to a decentralized system. So we have to be careful not to necessarily automatically shoehorn ah you know this particular environment into into existing frameworks and existing regulation.
00:06:37
Speaker
Indeed, and I think that's a really good way to look at it um because again, we still have a lot of work to do in the sense that it's reassuring to see that the understanding that policymakers are having around this technology has been
Policy's Role in Market Confidence
00:06:51
Speaker
improving. Also, we see it in the approach across multiple jurisdictions and we'll get to that in a moment. and But also policy doesn't just contain the risk, but it also shapes the market confidence. So one thing that I'm curious about is how you think about the relationship between policy and market confidence. What kinds of rules help a market evolve well?
00:07:17
Speaker
I mean, strong regulation is really important for market confidence, no doubt. um It brings market confidence. it's And it's not just regulation. I think confidence is multifaceted. And I think we need to be you know clear on that as well. It's not just about the regulatory bodies putting out the right regulation. It's also strength of institutions, you know the legal framework that that works and is trusted. But regulation does play an important part in the certainty of regulation, the the clarity and transparency of what is expected.
00:07:52
Speaker
You know, the the the risk appetite that is that is accepted in a particular market. And it really is about better regulation. you know it's know when we talk about strong regulation, it doesn't necessarily mean that you have they have to have belts and braces around everything. There's different types of regulation is rules based, there's outcomes based, there's indeed self regulation. I think, you know, regulation in all of this, know, the spectrum of how oh ah how you regulate the market needn't be necessarily a and a formal regulatory body.
00:08:25
Speaker
But the key thing is that all of these different types of regulation working together and being implemented in the right way for the right purposes, such that you achieve proportionate regulation. Because if you overregulate, you know you end up with a market that's left behind.
00:08:42
Speaker
and And there isn't necessarily confidence in coming in and investing because the conditions aren't aren't there to innovate. to invest, to reap those you know to to really unlock that economic value that innovation brings. And so it it is a real, it's a fine balance between you know strong regulation, which i i deem as better regulation or proportionate regulation, and and allowing you know confidence being built into that, but in a way that also allows for constant progress on on sort of outcomes for the market from economic to you know consumer outcomes and um and consumer choices.
00:09:23
Speaker
And I like what you said, the word you used, multifaceted. and i'm Also acknowledging that it can be a very and nuanced space as
Forward-Looking Regulatory Approaches
00:09:32
Speaker
well. and um I'd like to also to know, because you also said, like the risk is when you regulate and then you are lagging behind the technology and just, again, there's no perfect, I think, match always. When you look at the speed and you look at the evolution of both the technology and the policy space, but what do you consider makes a regulatory approach forward looking in your view? Is it things like flexibility, better engagement, and better institutional capacity or something else?
00:10:06
Speaker
So forward-looking is ist sort of interesting in terms of regulation because, you know, it's... regulators need to respond to dynamics in the market. They they look at correcting market failure.
00:10:20
Speaker
And so when you look at a forward-looking regulator, often it could be you know misinterpreted as um you know anticipating, and sometimes they can. They can anticipate what the market failure is based on on history and and look at how you regulate in the right way.
00:10:39
Speaker
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00:11:37
Speaker
in the the the world that we live in, which it's you know it's fast-paced, you know technology is really rewiring the financial system and and in fact how we live our lives. The digital economy is is really here, it's growing, it's here to stay.
00:11:52
Speaker
um When I look at a forward-looking regulator, I consider what what is their engagement with the industry? not being ah not being afraid to say that we don't understand this particular technology, let's work it out. Let's bring the industry together and let's engage with them in a way that helps us understand. And and once you start to look at that sort of understanding, how can you put in the platforms or create the environment to ah you know to ah get ah get an oversight where this technology is today and where it's going?
00:12:23
Speaker
um where we know what What might be the opportunities as well as how do we guide against those risks? And so forward-looking regulators, in my view, going to create those at those environments to that that allows the industry to to you know to innovate, to test.
00:12:41
Speaker
Obviously, you're doing it in a contained environment. sandboxes test beds you know are great examples of those. um But it also puts out that rhetoric that encourages encourages innovation.
00:12:53
Speaker
And the policy that it kind of puts around how it encourages innovation is is really important. So so the tone from government and regulators is always very interesting to to the market. And you know it encourages sort of you know the environment of regulation. And that, to me, those are the sorts of things that I think you know, indicate that these are the indicators of forward looking regulatory approach in my view, but it's very difficult.
00:13:19
Speaker
It's not easy for regulators to to do this. That balance is always there and they need to think about it carefully. um but But I think these are some of the components in my view of forward looking regulation. For sure. and I think it can be easier said than done, especially in money balance, the other types of of issues that they're all busy looking into. Again, digital asset space is important, but it's not the only an issue at hand. And you mentioned engagement. So from your perspective, what does useful engagement between the industry and the policymakers look like in practice?
Industry-Regulator Engagement for Strong Markets
00:13:54
Speaker
and
00:13:55
Speaker
Is it things like quality, trust, and just... i specifically like to know what separates a productive conversation from a performative one
00:14:09
Speaker
well i think um you we have to make sure that the tension between regulation and um you know and and and industry is there so so everybody plays an important role here and tension is what kind of gets us to the right balance if if there is such a thing, it's always it's like a pendulum, it's always sort of swinging and you're you're always trying to adjust as you go, markets are dynamic.
00:14:37
Speaker
but to But that tension is, I think, is important because the the regulator does need to ask questions. They are risk managers at their heart. And industry wants to be creative and entrepreneurial and and they want to really, you know, drive great economic outcomes and so on.
00:14:55
Speaker
And so A useful engagement isn't necessarily one where everybody agrees. It is one where there is trust in which you can have the conversation for everyone to to you know to inform the other parts on where they're coming from and why it's important it's yeah to to don't apply that thinking.
00:15:16
Speaker
Right. And I often talk about this where we we talk about this, there's quite a lot, particularly with blockchain rising and and now with with AI being quite you pervasive in in in in our world.
00:15:30
Speaker
Now, I often talk about how regulators are really coming and saying what would we want to understand these technologies, we want to understand how we regulate them. And I think that's commendable. I've seen more and more of that around the world. in fact, two years ago, some economies weren't even thinking about this and now they're really kind of engaging and embracing it.
00:15:47
Speaker
What I would also say is there is a need for regulate regulated entities to think about what it means to be regulated. Why is it there? How do we embrace that as something that really supports how we run our business? it is it is at the At the end of the day, it's about risk management and applying risk management frameworks in the right way. That's what regulators want to see, particularly contact regulators, would say, but even across the board.
00:16:12
Speaker
And so... um And understanding the role of regulation and why it's there and and understanding that the end outcome actually for the market is we all want the same end outcome. We want strong markets.
00:16:25
Speaker
We want strong institutions. We want confidence and trust and integrity in the market such that investors are keen to come in and invest and consumers are happy to consume.
00:16:37
Speaker
The end outcome is the same for all of us. How we get there is where that tension comes in and that the tension creates the balance. And as long as there is open dialogue, public-private kind of partnership platforms where you can have that dialogue and everybody's able then to adjust to get to the right outcome. I think that's what makes sort of the engagement helpful. I've got some examples if if that's that's interesting to you. I'd love to to hear more about that.
UK Fintech Regulation Experience
00:17:07
Speaker
Well, so I worked in the UK for a long time and, um you know, the UK is a great market. it's It's the second largest in terms of fintech investment. It does have that sort of entrepreneurial mindset. It's got, you know, breadth and depth of market. So it really was a privilege working in the UK for 13 But I observed how, um you know, where there were various innovations coming out, and this was specifically my frame of reference is the payments based,
00:17:39
Speaker
innovation is exactly coming out, the regulator had to respond. but I set up the first payments department at the at the FCA. And so um well I engaged with the industry quite quite a lot and i I tried to really help them understand why regulation is there and what we're trying to do and how can we find the right common ground to actually make sure that we are achieving the outcome that we want to achieve. And that was was quite helpful, that engagement was well received.
00:18:07
Speaker
Now, um fast forward yeah a couple of years, two or three years after that, then then there was quite a lot of, I think, regulation that the market felt it was it was fine it was beingpied it was stifling.
00:18:20
Speaker
And, you know, industry came together and really made a point on how this is going too far. you know, and it was really interesting to watch in terms of those dynamics and the real strong voice of industry coming out saying, we we appreciate and understand regulation, that we want it there, but it's going too far. Let's find a way in which it can kind of come back. And obviously government then changed and responded and and everything else. And now you can see sort of a nice balance on how we you know, everybody in the UK wants to embrace innovation, what the Financial Conduct Authority is doing in terms of its supercharged sandbox and and you know different initiatives is is sort of an example of that that's a great way to illustrate it and it wow that that sounds amazing and um shifting from that and i think it's a really good transition also to just like grab everything what developments in this space do you think deserve more serious policy attention right now even if they're not necessarily getting the loudest
Coordinated Technological Implementation
00:19:25
Speaker
headlines? Is it cross-border infrastructure, institutional uses, tokenization, digital identity, or something completely different?
00:19:34
Speaker
um I think the, I guess it's not necessarily about attention, attention, to the various technologies themselves. I think it's the the stage at which which these technologies are at, I think is the question. There's a lot of noise around the right things, tokenization, cross-border payments and how we use these technologies to improve them. the friction that happens within within this, you know, the payments chain, particularly on a cross-border level. and And obviously there's a lot of conversations around things like, you know, fragmentation, sovereignty questions and and and so on and so forth.
00:20:14
Speaker
Where I find the space that's not getting enough attention is how do we move from dialogue to implementation to unlock the benefits economy-wide?
00:20:27
Speaker
you know And this is, I think, where a lot of markets a lot of governments, central banks are struggling to move from the conversations around these topics and potentially the very siloed you know use cases and implementations. They might even be not necessarily just proof of concepts, but making it into pilots and real world application and launch.
00:20:50
Speaker
But it's all very siloed. And how can we make sure that there is a way in which and I call it the coordination addiction failure, where everybody's moving at different paces, they're potentially staying in their lane, in their silos, and we we might end up with fragmentation and not being able to unlock the benefits economy-wide. So that that sort of need to talk about how do we implement this for maximum benefit economy-wide to ensure interoperability, to ensure that the right benefits are unlocked is... is
00:21:24
Speaker
a topic that i think is not getting ah enough attention right now. And that so i think it's a really good way to also close us off and because at the end of the day, these technologies are global and we also have to remember that more than achieving harmonization, because I feel like we hear a lot about harmonizing, harmonizing, but in reality, it gets way more complex
Conclusion: Balanced Judgment in Crypto Policy
00:21:45
Speaker
than that. But if we strive for those more coordinated approaches it can be easier for both um the policy makers developers and at the end of the day i think that all of this discussion has made something very clear that smart crypto policy blockchain regulation
00:22:06
Speaker
They're not just about reacting quickly or just writing more rules about everything, but it's about balanced judgment, good risk management, institutional capacity, and understanding what kind of market infrastructure you are trying to support in the first place. And again, it might sound and simple, but...
00:22:26
Speaker
it's very complex it changes the whole conversation and practice so once again thank you so much Maha for for joining us it was great to to hear from you from your experience and once again thank you to our audience for tuning in and head over to avalanchepolicy.com for more educational resources and we'll see you all next time
00:22:49
Speaker
We hope you enjoyed this episode of the Policy Layer. If you want to learn more, check out avalanchepolicy.com for free educational resources. And also follow us on social media at avalanchepolicy to stay updated.