Technology Acceleration and Regulation with Sigal Mandelker of Ribbit Capital

Sigal Mandelker:
Most of our global financial infrastructure was built in the pre-internet world.

Jeremy Allaire:
Hello, I'm Jeremy Allaire, and welcome to The Money Movement. I'm very excited to be here in Singapore during the Singapore Fintech Festival, and joined here by Sigal Mandelker, who is at Rivet Capital Capital, and I'm very, very pleased to have you for this conversation.

Sigal Mandelker:
It's great to be here. Thank you. I'm glad you flew me all the way to Singapore so we could chat.

Jeremy Allaire:
Exactly. It sort of works out that way. Where are people? Yeah, absolutely. So this is great. Lots we can talk about, and of course, never enough time. But maybe just to start, you've had a distinguished career in both public service and also in the private sector, and now on the investing side at a preeminent FinTech-focused venture capital firm. But from your work at DOJ through the Treasury Department, maybe just talk for a moment about that arc, and then sort of what brought you into both investing and sort of your deep interest in this whole thing. This whole blockchain technology space.

Sigal Mandelker:
Yeah, sure. So as you know, before I was at Rivet Capital, I spent a big chunk of my career in and out of the public sector, both at the Justice Department, Homeland Security, terrorism then most recently as undersecretary of the Treasury for and and financial intelligence. And in that job in particular, I oversaw OFAC and FinCEN and a policy shop and an intel agency, and it was very much a global job. And so I would travel all over the world. And this picture emerged for me in my travels. When I was in emerging markets, the developing world, repeatedly when I would meet with central bank governors, finance ministers, heads of state, CEOs of banks, in certain parts of the world, they would say, can you help us get access to U.S. Correspondent banking? Right. And of course, I can't tell J.P. Morgan where to bank. We could help those countries from a thinking about compliance, et cetera, perspective. But it was pretty striking to hear so many different, different regions of the world where they're saying, hey, we need, we really want access to The U.S. Financial system. Can you help us? So I went back and I looked to see what was going on. Why were these countries asking for that? And it turns out that starting in 2012, we started to see this very steep decline all the way to today of U.S. Correspondent banking. Yeah. And I believe there are many reasons for that, which we could talk about at length. But net net, it means that, you know, we've got a lot of people who are saying, hey, we need to get access to The U.S. Financial system. We need to get access to The U.S. Financial system. We need to get access to The U.S. Financial system. And I think that from when you think about things like financial inclusion, Western banks or U.S. Banks are getting out of those regions. There's a lot to be worried and concerned about. And so I came to the conclusion our banks are not going back into those regions. The only way that we were going to change this dynamic was through disruptive financial technologies. So I left the Treasury Department in October 2019, and I gave myself some time to figure out what I wanted to do next. And along the way, I met our founder, Vicky, who you know well. And although we had very different professional backgrounds, we saw the world in much the same way. And within a week of talking to him, he said, hey, why don't you— He was from Venezuela, I think. He was from Venezuela, yeah, exactly. And he said, why don't you—you know, we've always wanted someone with your background. Why don't you think about joining us? And I took a leap of faith, and here I am three and a half years later.

Jeremy Allaire:
That's amazing. We care a lot about, you know, how do we bring dollars to the world? How do we improve financial access and inclusion? And technology is a big part of this, obviously, and software innovators and other things, right? They're going to be the ones who are improving the financial system in many ways. And, you know, you took a strong interest in what was happening with digital currency and with blockchains, you know, as a core technology. And I know you've been an advisor to Chainalysis. You guys are investors in Chainalysis and also a number of other relevant investments as well. But what is it about this technology that you think can help address those issues? And then maybe related, you know, what are some of the inherent risks that exist with that technology today, right? There's lots of stuff, news headlines, other things, always about, like, risks with it as well. And that's something, obviously, that probably in your prior role, but also just regulators in general are focused on. So, opportunity and risk and sort of what have you looked at as you've thought about this particular set of technology in trying to improve that financial access?

Sigal Mandelker:
Yeah, it's a great question. So I think like many people who've been in this space, you have this sort of moment in time where you're like, oh, I see what's wrong with the current traditional system and why this technology can get us to a different place. And for me, part of that was the realization, A, that most of our global financial infrastructure was built in the pre-internet world. I mean, it's really striking, right? They did use FTP servers, though. Yeah, exactly. Cobalt. Exactly. I like to say that, you know, I was introduced to the World Wide Web in 1993, and I thought it was just a fad because we had DOS, but it turns out there are things that are much better. And I'm not making that same mistake. So that's number one, right? Like something has to change because even though there's been modernization, at the core, it's a very old programming language. And like you, I'm sure I've had all kinds of frustrations when trying to engage in the banking world. And then you start to interact with the technology. You start to meet all kinds of developers, computer scientists, cryptographers, whatever it is. And you really start to get excited about what the world can look like with global blockchains. You start to think about the fact that going back to that problem I mentioned before, access to dollars. Well, with a stable coin, with USDC, people who are living in countries of hyperinflation can instantly get access to something much steadier that's more meaningful to them. They can put their money into what some people call digital gold, Bitcoin. It's really incredible that no matter where you are in the world, if you have some kind of internet access, you can participate in this economy. And so then you start to see like, oh, what are the real possibilities here? And they're amazing and fascinating and a lot to be excited about.

Jeremy Allaire:
So you got hooked and you've been trying to figure this out. I like to refer to this as the internet financial system, right? We have the legacy financial system. We have this internet financial system. And it is literally built from the ground up on the internet. The base layer of money is built as software-based. Yes, there's an external database with The dollars at the Fed, in our case, so to speak. But this internet financial system is still emergent. And we've seen, obviously, growth in some of these emerging markets. We've seen growth as an investing technology, cross-border technology. But everyone's sort of looking at this and saying, OK, how does this become mainstream scale? Like billions of people accessing this and using it. And so we've had compliance and regulation, two sides of the same coin in some cases, have been like these vexing issues. Banks haven't wanted to bank this. They've been looking at this sector because of the difficulty in meeting what they perceive to be, you know, their compliance requirements. And then you have an entire industry all around the world with kind of emerging compliance rules, VASP , other things. But let's just say offshore actors that are not as interested in pursuing those. And so you have this very complicated market with this. When you imagine how we get to the mainstream scale, what changes do you think are necessary? What are the avenues? And from an investor lens, I'm assuming you look at this as like, what are the problems to be solved to get from where we are today to billions of individuals and households and firms and others, depending on this?

Sigal Mandelker:
First and foremost, you know, like so many things, we actually need regulators to get much more comfortable with it. Because once you bring this technology into the regulated space and you don't have regulators who are saying, I don't understand it. You need to stay away from it. Then people are going to just naturally become, I think, more comfortable with it. And actually, I think we've sort of over-complicated that problem. When I was at Treasury, I started in 2017. Vincent had already. 2013, they said.

Jeremy Allaire:
I couldn't start my company without that regulation.

Sigal Mandelker:
Exactly. I mean, it was Jen Calvary at the time. I remember. So Jen said, look, it looks like you're involved in money transmission. You all look like money service businesses to me. So you have to build out financial crimes programs, et cetera. And then I came in 2017 and I saw, look, there were really only three countries at the time in the world that had the kind of regulation that we had. It was The U.S., it was Japan and Australia. So we were ahead. Yeah, I know. At the time of the game.
Jeremy Allaire:
I tell people that it's like The U.S. Is like, I was like, actually, no, the U.S. Was the very first country in the world to regulate intermediaries in space. I have a funny story. I'll just quick tangent, which is that when I was putting together the company, I had Jim Breyer and Excel and others wanting to invest. I used my own money to hire Promontory Financial Group to do diligence with the Treasury Department as to like. If I build what I'm trying to build, like, can I do it? Is it legal? Like, or is this just going to be like money down the drain? But I did that because I wanted to get a strong point of view from a regulatory perspective and got very clear indications. Like, no, you can do this. You just, here's what it takes. And so it's like, okay, this is going to be very expensive and a big investment. But like, we want to be kind of compliant first. And so, but The U.S. Had that framework.

Sigal Mandelker:
We had that. And that was visionary at the time and visionary of you to take that leap of faith. And by the way, so like 2017, I said, we have to change something. Not having only three countries in the world with this kind of AML framework isn't sustainable. So we launched this massive push to get countries all over the world to have a similar set of rules because, you know, otherwise bad actors are just going to go to the jurisdictions that don't have those rules. And by the way, on the AML side, we were really successful. And then we thought about it, and you have all these countries around the world that are really now taking it more seriously. In 2019, we issued guidance, which became very well known because we wanted to tell people what the rules of the road were. Because when they know what the rules of the road are, then they know what the boundaries are, how they can operate. Something has changed since then. There's just been a massive reluctance to do that from some regulators, which I think when that piece changes, when other regulators say, oh, OK, if I want to protect investors, maybe I should tell them what the rules of the road are. Maybe I should mandate things like disclosure, chief risk officers, compliance officers, segregation of customer assets. Those are things we can solve for. And I completely believe that we will.

Jeremy Allaire:
Well, in many parts of the world we are, right? Here in Singapore, for example.

Sigal Mandelker:
That's right, exactly. In Singapore, they have really, they've issued rules. Not everyone's loved them, but they've been very experimental. They're interacting with technology. They're encouraging tokenization, working with banks, by the way. Yeah. And with crypto companies. So it is coming, I think. And the thing that's really going to unleash it for the masses is when people appreciate that when you use a stable coin to do payments. Yeah. Or cross-border transactions. It's cheaper. It's more efficient. You can do it in a compliant way, by the way. I actually think at the end of the day, we're going to be better with crypto when it comes to AML than we are with traditional finance. I want to talk about that.

Jeremy Allaire:
Absolutely. Maybe a bridge to that topic, which is there's sort of this tension that exists in the industry around blockchains that are transparent and you have all the analytics. And they're actually terrible for criminals and so on and so forth. Right. And obviously, you know. There's another view which says this is the ideal thing in the world for criminals and so on and so forth. And obviously, it's probably somewhere in the middle. Right. There's a very strong, deep libertarian view on one side and then I think a very conservative view on the other. And it's probably somewhere in the middle. But we do need to see the promulgation of things like the travel rule and these kinds of expectations that exist in the traditional financial system. Like if you're moving large sums of money, like that there should be a record. And that you should kind of know your counterparties. And like it becomes difficult to maintain financial integrity without those kinds of things. And what do you think of some of the steps are that are needed to get there on a global basis, not just in The U.S.

Sigal Mandelker:
One of the things I think that we need is a lot more openness by policymakers and regulators to experiment with the technology. You know, if you're in The U.S. Today and you're a regulator, you can't have any crypto for the most part. I mean, it's pretty extreme. Even a stablecoin. I actually have this analogy I use now that, like, if you're at The Fed, you can have a dollar even though you have influence over monetary policy. The dollar goes up and down. What's the difference between that and having a stablecoin? And yet we have these extraordinarily arcane rules completely disconnected from what this technology is and what it's doing. That's number one. So you need regulators to interact with the technology. Number two, I'm just someone who's always believed that if you put a set of developers, software engineers, computer scientists, and you tell them, hey, we have this new technology. Functionality, we need to figure out how to do things like on-chain compliance, identity, embedded identity, et cetera. They are going to figure it out. I actually think at the end of the day, because you have this massive amount of talent thinking about how to solve those problems, this sector is going to be better at AML than what you have in traditional finance. Because by the way, there are a lot of problems with how AML is done in lots of different ways. I couldn't bore you with it, but could talk to you about for hours.

Jeremy Allaire:
I think that the whole model of replicating all this PII all over the place and creating these honeypots of data and actually using technologies that are not very good at security to even transmit and store all of that. So this is fragile, right? It's like actually, it creates the conditions that allow for bigger exploits.

Sigal Mandelker:
Well, think about the fact that if I go to a liquor store and I show my driver's license, by the way, not only the person who's looking to make sure I'm 21, because that's the only way to get a driver's license, but the person who's looking to make it's questionable can see all of my information, but there are security cameras. And where are those security cameras coming from? Where's that technology being rooted out to? So the possibility in our current system to abuse identity, they're just endless. I used to prosecute a lot of those cases, right? You have hundreds and hundreds of millions of stolen credit card numbers. And so we don't even have a social, we say social security, but there's no security in the social security anymore. So again, it's to put a group of smart people and talk about how we can start to preserve privacy, use our identity in fundamentally different ways. There's so many different advantages, I think, again, in the long run to how we can use this to cut down fraud, cut down, et cetera, if we're just a little bit creative.

Jeremy Allaire:
Absolutely. The word crypto has so many embedded meanings now, and it's a bad word to certain people, but it's just cryptography. It's just cryptography. Cryptography is just math. So we're talking about the best applied math that we have. So, okay, that's a pretty neutral thing. How do we use the best applied math to encrypt things, to protect information, to preserve privacy, but also to prove things? Yes. Cryptographic proofs allow us to use math to both shield information, but also prove things like an identity or that you're meeting a certain attestation or requirement. So- Yes. I think that's another place where I think on both the industry side and on the regulatory side, have to kind of come together and say, look at this material that we have to work with to solve these problems. Right.

Sigal Mandelker:
And then there's the other piece, which is, again, when you think about cross-border transactions, there are all these different intermediaries in our existing traditional system along the way that are collecting that data, that are making money off of you. Boom. You go from one to the other. If you use USDC- Yeah. One of our companies, Sling. Yeah. Great product. It's a great product. It just moves magically, compliantly. Yeah. Yeah. Basically, it's about 50 seconds. Yeah. So we're so close.

Jeremy Allaire:
Yeah. Yeah. One of the things that we've spent a lot of time thinking about, we actually just started working on a new nonprofit standards foundation with Block with the Linux Foundation, which is sort of essentially identity credential models that will work alongside, you know, various types of transactions. And I know a space that you've looked at has been a new blockchain infrastructure that uses, you know, zero knowledge proofs and things like that. To simultaneously balance privacy and compliance. And where do you think we are in that? Are you optimistic about that technology space?

Sigal Mandelker:
Oh, I'm so optimistic. I'm so optimistic about it. Again, because, you know, we've invested in companies that are working on it. I've worked with some of the best experts really in the world in that particular field. So, yeah, I'm very optimistic about it. I think it's really important, really needed. Ten years from now, I think we're going to forget that we even have driver's licenses. Totally. Because they don't really. Yeah. Why are we carrying this paper with us? Credentials are so superior. They're so superior. And again, my belief is that we can do it in a way that's going to root out the bad stuff more successfully than what we have today. We just have to get to a place where regulators feel more comfortable experimenting with it, building out standards. I mean, the industry is building out standards in lots of different ways. We also need to solve things on the cybersecurity side. I mean, there's still. It's not a perfect system, but there, too, we have a great company, wallet security companies, Fire Blocks, you know, who are really pushing the entire field forward. I know you have phenomenal people. It's a big thing. But we are without a doubt. We're going to get there.

Jeremy Allaire:
Yeah, yeah. I'm an optimist. I lead through optimism and things like that, but I do agree with you. And I think a lot of people just don't see this. It's gonna surprise them as these things kind of come online. But yeah, I think it's a complex world that we're in, and there's a lot of attention on these issues right now. And the internet continues to accelerate. I mean, AI acceleration, blockchain acceleration, other things, but these issues are really, really core. We have to solve them.

Sigal Mandelker:
Yeah, I agree.

Jeremy Allaire:
Yeah. Well, Seagal, great to have you on the show and have this conversation.

Sigal Mandelker:
Yeah, thanks for having me. It's always great to be with the Circle .

Jeremy Allaire:
Thank you.