I had the pleasure of sitting with Vincent Chok, CEO of First Digital, a Hong Kong-based company driving innovation in the trust industry by bridging traditional and next-generation digital asset classes.
We hit topics such as what excites him about the industry, the opportunities it presents to institutions, how First Digital plays a vital role in risk mitigation, and more.
Vincent has a specific mission for First Digital’s role in the crypto industry. First, he wants to help drastically accelerate the flow of institutional money into digital assets.
Moving fiat money to digital assets allows institutions to participate in the technological advancements of the blockchain and the many innovations that are enabled as a result. First Digital is one such institution that is taking advantage of blockchain technology by applying it to the outdated system of deeded trust to make it more efficient, transparent, and auditable.
‘Old legal system’
“It started with ourselves. As a trust company, we’re dealing with a very old legal system whereby assets are secured through a deed of trust. So when I looked into blockchain, it seemed like a perfect fit to replace the old style of doing the trust business.”
“As a Hong Kong trust company, Hong Kong law changed about three years ago to permit trusts to be perpetual trust, meaning that you can hold your trusts for generations and generations … So being perpetual means that there are many transactions, and those transactions need to be properly documented. So the blockchain seems to be perfect for that.”
As Chok alludes, a defining advantage of the blockchain is its immutability.
Once information is on the blockchain, it is there forever. This means the complete history of transactions can be quickly referenced without the need for us to trust a third party. In code, we trust. You could say that a trust company using a technology that removes the need for human trust is ironic. I think it’s a great example of a company using technological advancements to deliver a better solution.
To help target the flow of institutional money to digital assets for the best trade-off between opportunity and risk.
Mitigating risk and creating opportunities for its clients is what First Digital does best. The world of crypto moves fast. New risks present themselves daily, and First Digital makes institutions aware of the risks and properly manages them.
“This is why First Digital exists. We are trying to reduce the risk for institutions coming into the space using cryptocurrencies and blockchain technology and incorporating their business activities into that. When it comes to financial institutions’ funds, the risks are: is there proper due diligence available, is KYC done properly, what is the jurisdiction they are promoting their products in, are they legally able to promote their products, and what are those products? So we look at all angles to ensure compliance, AML, tax reporting obligations, etc. We work towards these things that are part of traditional trust business that we are bringing into the digital asset business, treating those clients like a bank or family office in the traditional space.”
But what about how risk is approached when dealing with traditional and digital assets?
“The way I see it is that the risk lies in the transfer of the funds, and you can’t just recall it,” Chok said.
“The banks do a lot of the due diligence on the funds coming in the traditional finance system. But in this case, once you shoot your crypto into another wallet, you can’t call it back. You’re not doing your full due diligence on those companies where you’re sending your crypto.”
How does First Digital help?
“First digital custodies those assets and ensures the investment complies and follows the regulators’ rules. We protect the consumers and our clientele. When you transfer the funds, we are the ones that are limiting the risk by taking the AML steps, performing due diligence on the source of the funds, probability of scams, and legitimacy of the founders.” He added, “in general, many CeFi companies don’t provide this information.”
The same services that are available for traditional investments are made available for digital investments by First Digital.
So now that investors have First Digital to lean on, what is their risk appetite for financial institutions getting into the digital asset space?
Chok says companies are allocating about 5-15% of their total portfolio to digital assets. He also thinks that allocation would be higher if more companies like First Digital existed to help provide a more robust security layer.
When there is less money movement in a bear market, it may look like crypto adoption is slowing. On the contrary, institutions are focusing now more than ever on blockchain technology. It’s just that the conversation has shifted to one of security, infrastructure, and building.
Chok points out that another substantial opportunity for financial institutions is stablecoins.
“I think the biggest opportunity for institutions is the settlement aspect of stablecoins. If something needs to be done quickly, they can use stablecoins to get it done more efficiently for payments and settlements. Of course, there are still risks involved like the underlying reserves, who is holding the underlying reserves, is it secure, or is it invested in high-risk assets.”
This is where First Digital comes in to add a transparency layer to all of those risks.
We wrapped up our conversation with the question of how to achieve mass adoption. In the past, the narrative was, “once the institutions come, mass adoption is soon to follow.” But in reality, that hasn’t played out. So what will drive adoption? Chok’s theory is to create more integration points with our everyday life.
“We see so many applications using blockchain technology and things like NFTs. We participated in New York Fashion Week, and one of the things we are seeing that is getting popular is luxury brands incorporating NFTs into their designs and creating lifelong items that can be viewed generations and generations in the future.
“So there are things that we are building that are also really exciting. We’re doing crypto payroll, for example. So we’re incorporating the technology into real-world situations trying to solve real-world problems, not only dealing with luxury brands, not only dealing with NFTs and bitcoin and other cryptos. But we’re using the technologies to help be more efficient regarding pension plans and how people can use them to hold their digital assets. So that’s what I’m passionate about – how we can make this world operate more efficiently by incorporating and using these products.”