Hi Guys, Welcome to the Fintech Coffee Break, I’m your host, Isabelle Castro. A couple of weeks ago, I shared my coffee break with Simon Grunfeld, Head of Web3 at Cogni.
Cogni is a digital bank that has, in the past year, made its way into the Web3 space. First releasing a non-custodial wallet last month, they launched a KYC protocol for crypto companies to maintain compliance.
I spoke to Simon about the importance of self-custody and how it’s critical to the crypto space’s ability to move on from the CeFi collapses of last year.
Isabelle Castro – Hey, Simon. Thanks for coming in.
Simon Grunfeld – Thanks for having me.
Isabelle – Good to have you on the show. So, to begin with, what gets you up in the morning?
Simon – Aside from the gallon of coffee that I ingest every morning? You know, I’m in a very fortunate position where I get to wake up and think about the next product that we’re building, how we’re going to make it very different how we’re going to make it so that it improves people’s lives. In this case, you know, what, three experiences and then how we’re going to get it into their hands. That’s really what gets you up in the morning making products and then shipping products.
Isabelle – Nice. Okay. What was your journey before you came to Cogni?
Simon – That’s a long story. So I originally started my career in IT. I mean, backup going to college, I was a biochem major, trying to go into pre-med like every good Jewish boy wants to do, right. But unfortunately, that wasn’t in the tea leaves, so to speak. So I got into it very early on the.com bust of the 2000s was what kind of piqued my curiosity. So I started learning a lot of web development locally, or networking, things like that. And then just through sheer luck, I fell into capital markets. And then, very quickly, I became a certified commodity trading advisor at CTA registered under the National Futures Association. And then I started building all kinds of products and services offering to both retail and institutional customers within FX foreign exchange. So a lot of stuff happened fast forward 2014, I launched a company called Ivan X, that we built our own our own custom exchange that we white labeled for others that wanted to build their platform out. So that’s what we were doing for a while. And I’ve been in bit in in crypto and more recently NFT since NF T’s has really started 2020 2021 is where I kind of got into non fungible tokens and been there ever since.
Isabelle – Okay, nice. So, I’m a bit confused. You guys at Cogni, you were a digital bank, and then you went into Web3. Why? Why did that happen?
Simon – Well, it’s, it’s not that we left Web2. We are Web2 will always be Web2, But now adding on that extra layer of Web3 basically rounds the entire offering, because we’re able to offer our customers a platform that allows lets them custody their fiat money, use it in a checking capacity, you know, collecting your payroll into it using debit cards, etc. And now, with Web3, now the same user can also custody their digital assets within the same app, crypto, NFTs, anything around that whole Web3 experience. We’re now building on top of it. So we didn’t leave Web2, what we’re doing is we just added on to it the Web3.
Isabelle – Okay, so yeah, you mentioned it. Your first foray into Web3 was self-custody. You’ve been in there for about a year now
Simon – Cogni? Yeah, so Cagni launched our noncustodial wallet back in December.
Isabelle – Okay, so six months?
Simon – Yeah.
Isabelle – Nice. So why is self-custody So important?
Simon – Self custody? Well, there are a lot of reasons why it’s so important. First and foremost, only through Web3, can a user actually custody digital assets. That didn’t exist before Web3. We’re seeing also in the last year, companies like Celsius, Voyager FTX, Three Arrows, the list goes on and on. And we’ve had other exchanges in the past all completely implode. And then what happens is users are now chasing them for their money. So what we decided to do was because we already have a charter bank behind us, which means that all users that are depositing money with us, they are FDIC insured to a certain amount, of course. So in the event we fold for whatever reason you get your money back.
Well, now what about on the digital side? How do we offer custody of digital assets, but also at the same time, if something happens to us as an organization, you’re not running after us? Self custody. That’s it. So when a user signs up for Cogni account, they get the full app experience, including the Web3 as part of that app, and they can immediately generate a new key, pull that key off Metamask, whatever other wallets that they want, but we never actually hold on to their crypto, it’s within the users’ control.
Isabelle – Okay, and it’s just a lot more safer because..
Simon – It’s a lot safer because you do not have to trust me. You only have to trust yourself. That’s one.
Two, it also means that you are void of any kind of threats that we would experience, meaning Coinbase, Gemini, Kraken, all these centralized exchanges have to deal with external threats on a daily basis because they are the ones that are in charge of the fort. Okay, so they are the ones that are in charge of your key and have all the assets. They have their internal teams doing what they’re doing on a daily basis. We don’t have to worry about that because we’re not costing your crypto you’re costing it.
Isabelle – Okay, great. Um, some centralized entities, and crypto exchanges see self-custody as unrealistic. I had a conversation with someone at Consensus that said it’s naive. What do you say to this?
Simon – Well, what I say to that is just to kind of pivot just a little bit. People who own very expensive jewelry, you know, they have the option of casting that in a bank vault or cussing in at home, with art with cash with any valuables, you can do the same thing. So I understand why some people would want to depend on a third party to help them because maybe they don’t trust themselves. Maybe they’re just one of these, you know, wishy-washy types, and they can’t be trusted just to print something out and store it in a book somewhere, which is really all you really need to do to custody your own private keys, you just print it out, and just as a piece of paper, stick it somewhere. And that’s it.
But even then there’s a little bit of a of a gap, I think it’s going to take a little bit of time, it’s going to take a little bit of time for adoption to happen, maybe not this year, maybe not next 10 years or 15 years. But it’ll happen eventually, we’ll get there. The naivete of it really revolves around people thinking that there’s no need to change the status quo. Well, we’ve seen, and we’re seeing now that there’s both custody and non-custodial solution. So that is the status quo. Also, if you want to talk about status quo, Well, shit, how many of these exchanges have exploded, imploded, and now people are running around trying to get all their cash, you know, go chase FTX go chase Celsius. Go chase, he’s got good luck with that. If you were self custodying your own crypto, you wouldn’t have had that problem to begin with. So that’s my response to comments like that.
Isabelle – Okay. No, it’s true. It’s true. And a lot of this so yeah, it’s all revolved around trust. You mentioned FTX Celsius. Are they just bad actors? Could this happen in other places?
Simon – The answer to both those questions is yes. Okay. So, SBF, Alex Machinski, All these guys? Yes. Unfortunately, they’re bad actors. There’s no way around it. I can’t sugarcoat it. They acted. Yeah, they had ill intent. SBF is probably going to claim that “Well, I didn’t know, I didn’t this, I didn’t that,” he was the head of the org. There’s, there’s no way you can’t pull that on me. You can’t say I didn’t know what was going on. You’re at the top of the totem pole, you know exactly what’s going on. In fact, he was doing weird things before, which people don’t really know unless you’re in the know. So if you want to understand how Sam got to start FTX, I would say you want to Google something called the kimchi arbitrage. Okay, kimchi arbitrage. Sam was running Alameda at the time. And he managed to figure out an arbitrage solution to the Korean markets and non-Korean markets because in Korea, you can only trade within other Korean participants. What happens when you have closed pools like that you have price discrepancy. So he found a way to move money from one pool into another and make that differential. So he was doing that stuff way before FTX. Okay, Alex, I don’t really know his background that much. But I do know the people that have associated with him in the past, and they’re kind of the same cloth.
Isabelle – Okay, so there were warning signs.
Simon – Yes, absolutely.
Isabelle – I mean, you’ve got people right now that kind of, you know, CEOs and stuff that say, yeah, you can trust us, but they’re not actually giving any kind of transparency into them.
Simon – So there’s a phrase you know, if you want to say “F you” in any language, you say “trust me”. I would say this.
The reason why I tell people to open up accounts with Cogni is because you don’t have to trust me. Trust our infrastructure play in the sense that you own your keys, you own your crypto, so if shit goes south, you still have your crypto and trust FDIC, which we can see First Republic, SVP Signature, all these banks that are failing – FDIC steps up, and they make everybody whole that doesn’t exist on any crypto platform today, right? So you can’t say that the likes of Coinbase and Gemini and Kraken, if they, for whatever reason, they fold, you’re chasing them. On my end, I’m saying you don’t have to trust Simon. Okay, you can trust FDIC and trust yourself with your own crypto.
Isabelle – Okay, it makes sense. It makes sense. So would you say kind of like this trust aspect has driven quite a lot of your movements into web three,
Simon – I would say that that’s probably the headline of what it is that I’m trying to do. There are two areas within Web3 that I’m trying to bring trust back. One is around exchanges and the other one around identity. Identity has been a problem because this whole anonymity that follows with Web3 was great to begin. The problem though, is now you have all these bad actors that are using this anonymity to wash funds to circumvent AML Rules. It’s just a matter of time before here in the US we adopt the same kind of policies that the EU adopted a few weeks ago where they actually set limits of no more than a 1000 Euro transaction between counterparties who don’t know each other, okay, so you want to do a 2000 Euro transaction with me on wallets, you’re effectively breaking the law. Unless I know that it’s you, and you know that it’s me. How do you do that in an anonymous environment?
So we solve that problem, too, we launched something called the Cogni passport. And the Cogni passport essentially uses tokens to identify a wallet. That has been KYC to a banking grade level. That’s what we do on a daily basis. We KYC people, we then create that token, slap it on the wallet. Now they have a way to identify themselves if they choose to.
Isabelle – Okay, yeah, I was going to ask you about this. Because I mean, you came out with this a couple of weeks ago, right? Yeah. And it seems like a very good first step for companies to approach KYC as is it a first step towards compliance in general.
Simon – So yes, in fact, the long-term objective of what I’m trying to do with the Cogni passport is to alleviate any kind of KYC requirements by open seas, rare troubles club rare all the web three platforms out there that at one point are going to have to start complying with KYC. I say, relax, calm down; you don’t need to we got you covered. Just adhere to our standard and send your customers to Cogni to get KYC, and we’ll send it right back to you. We’re just clearing the way.
Isabelle – I mean, now, people are trying to build up trust. How do you think that they can do this, just in this current environment with regulatory clarity?
Simon – Um, well, first off has to do with identifying those wallets identifying yourself in a Web3 environment and doing it, where that trust where that certification comes from a trusted verifier, like cognitive. So you know how you go to a website, if it’s an E-commerce site, whatever it is, and you have that SSL certificate. A lot of people sometimes some people click on it, and they’ll say, oh, is issued by VeriSign, or is issued by GoDaddy, it was issued by somebody. We want to be that issuing party that verifies that wallet and becomes a known standard within Web3 saying, Oh, this is a web, this is a Cogni verified wallet. Okay. So Isabelle comes in, everybody knows everything, provided again, you allow them to see where you’re based out of your name, your your age, in the event, you’re accessing a platform that has age restrictions, for example. And that’s it, you’re just showing that information. So our intent is to alleviate the KYC concerns from Web3 companies and say, just adhere to our standards and your customers over to us, we’ll mint the tokens and send them right back to you with a verified wallet. And guess what, we have the opportunity to expand on that because your users will then be able to buy crypto on our platform and then use that crypto through our wallet on your platform.
Isabelle – Okay, so you’ve thought of everything.
Simon – Yeah, there was a lot of thought put into it.
Isabelle – Okay, what are you most excited about that’s happening in Web3 space right now?
Simon – Oh, so like we’re leading, we’re unfortunately, we are the ones leading this cause right now with regard to identity as a service. Okay? Because it doesn’t just limit it to just web three. I mean, this really goes as far as, and I’ve stated this with some people in the past but healthcare around if you’re familiar with the with an acronym HIE, health information exchange, so your information when you go to a doctor, okay, something happens and you go to get checked out, what do they sit down, they type your information into an electronic health record or an EMR EHR? Where does that information live? Who has access to that info? Nobody knows the answer to that. Okay. Okay. So now here comes an ability for you to do your own identity as a service where you’re in control of your identity, you are in control of your information. So that once your information goes into said EHR, if a pharma company now says, oh, you know, what, I’m looking at this profile, there’s this individual certain age, certain demographic, I want to collect all that information so that I can start looking at how to do my own clinical trials. You don’t make a penny off of that. But through this kind of a platform, this kind of approach, you have the ability to authorize if they want to collect your info, and to be compensated for sharing your information. This is a very, this is a first within any industry whatsoever. You have any ability to share your information on demand for exchange of some sort of value in return. Okay, that’s where I’m going with that.
Isabelle – Nice, okay. It kind of reminds me of the white paper Vitalik and other people brought out last year about soulbound tokens. Is it kind of based along those?
Simon – That’s what we’re doing. That’s what our passport is. It’s a soulbound token. Okay. So what happens is, is that you as a new user, come into Cognito. You sign up. By the way, the process I’m describing right now is half manual. We haven’t really fully automated the whole thing. cuz we just made that announcement a few weeks ago. But you would come in, you would get an account after you go through KYC. And then you would request a passport. And what happens is, is that our back system will scrape your data that’s already been verified. And we’ll mint a token that we drop into your wallet, the information that is attached to said token is encrypted. And you and only you have the key to unencrypted. Also, your information is encrypted differently than my information, again, with different keys. What does that mean? That means that there’s no one central focus point or one point of concern, because if my information becomes comprised compromised, yours is fine. Versus a centralized database, like Experian, or TransUnion, or any of these, like, you know, credit unions, or credit reporting companies where if they get hacked, they get attacked. Everyone’s info is exposed. Yeah, so we go around that as well. So from my perspective, identities of services, not just preserving your information, verifying that information, allowing you to have all of the all the rights to who you share it with and who has access to it, but also to monetize it on your behalf and secure it beyond what a traditional web two database does.
Isabelle – Okay, cool. Nice. I mean, this identity piece is a key to quite a lot of things that are going on right now they say kind of, you know, CBDCs, for example, the identity thing needs to happen in order for anything else.
Simon – Absolutely. And this, again, it doesn’t just limit ourselves to just transactions or even healthcare; think about the real estate market, think about; Now in California, they’re putting car titles on chain. Okay, if you can now match a wallet and verified wallet, a verified individual to that title, then that’s it case closed. You don’t have to do anything more for anybody who had to refinance a house, which I’ve had to do a few times or to buy a piece of real estate or to buy anything, there are stacks of administrative work that has to go into it, you can streamline all of it through blockchain. And now, with the use of soulbound tokens that they know exactly the person that has been verified, then you can connect the dots in a very seamless way. And we’re just scratching the surface right now. And that kind of stuff.
Isabelle – Okay, cool. Nice. I’m excited to see where you guys go with this. What piece of advice that you’ve been given, would you give to someone else? And this can be anything can be in your personal life, professional, anything.
Simon – anything? I just generally speaking somebody gave me advice, and what would i What kind of advice would I give this person? Oh, man, I don’t I we need to start drinking first before I get to that kind of phase. Because I mean, there’s just so much stuff that people have been talking about. I mean, that’s I know, and that I’ve like, Oh, listen, learn, listen, learn, right, a lot of life lessons. Okay, one thing that I hold above a lot of others is don’t listen to what people say, Look at what they do. Okay, nice. Meaning and that’s why you know, like politics, I don’t go I really don’t listen to any of that stuff anymore. Because I don’t care what people say I just am care. I’m just concerned with what they actually do. So I can say, I’m going to do 1000 different things. We see this in crypto and web three all the time. Okay, all these projects are all we’re gonna do this, we’re gonna change the world. We’re gonna, great, fine, fantastic. I don’t pay attention. I look to see what they do. Because that’s really the only thing that matters. Everything else is just hot air until then. So I guess the only one piece of advice is, yeah, don’t listen to what people say. Just watch and observe what they do.
Isabelle – Okay, nice piece of advice. Your curveball question. Okay. If you could turn into another person for the day, who would you choose to be?
Simon – I think I think this is gonna sound kind of ridiculous. Musk. Elon Musk. Okay. Yeah. Nice. And the reason being is because not only is he really all over the place, I think that the movies going on in his head are pretty entertaining. on daily basis, right? You can, I don’t know if it’s black and white or full color or what but you know, they gotta be interesting to begin with. But because he is really, you know, involved in so many different aspects. And because they’re all technology based everything from hardware to space to now Twitter, all of this stuff. Yeah, I just think it would be really interesting to spend a day in issues.
Isabelle – No, I agree. He’s, he’s all over the place. Okay, how can people get a hold of you?
Simon – So if they want to get a hold of me, personally, you know, I’m on Twitter at Simon Grunfeld, but best thing to do is if they want to understand more about our products and services, go to getcogni.com and go to our website, see exactly what’s what they can download our mobile app. If they’re Android or iOS. We support everything. And yeah, that’s, that’s really the best best way to go ahead and start your journey in Web3.
Isabelle – Perfect, I will be going on that very soon.
Simon – Perfect. Great. It’s awesome.
Isabelle – Thank you for coming in. I’ve really enjoyed our chat.
Simon – Thank you for having me.
Isabelle – Have a really good rest of your day.
Simon – you too thanks
Isabelle – As always, you can chat with me on my LinkedIn or Twitter at @IZYcastrowrites. But to access great daily content, check out Fintech Nexus on LinkedIn, Twitter, Facebook, or Instagram. You can also sign up for our daily newsletter, bringing news straight to your inbox.
For more fintech podcast fun, check out the website, where you can find more fascinating conversations hosted by Peter Renton and Todd Anderson.
That’s it from me. Until next time, enjoy your downtime.
Isabelle is a journalist for Fintech Nexus News and leads the Fintech Coffee Break podcast.
Isabelle's interest in fintech comes from a yearning to understand society's rapid digitalization and its potential, a topic she has often addressed during her academic pursuits and journalistic career.