Mar 11, 2024

Prometheum Inc. co-founder and co-CEO Aaron Kaplan joins "First Mover" to discuss the potential timeline for the launch of its fully compliant crypto platform within SEC regulations.

Video transcript

Our next guest has taken some heat from the crypto industry ahead of the launch of Promethium A crypto platform that should operate entirely within sec regulations. Aaron Kaplan co-founder and CEO of Promethium joins first mover now, Erin, welcome. Hi Jen. Thank you for having me. Of course, thanks for being here. Now, I have to come out the gate and just ask how the last year has been for you. Like I just mentioned, you've taken some heat from the industry. They're launching a fully compliant crypto platform in the United States which is like finding a needle in the haystack. I think in the current environment, talk to me about what's been going on for the last year. How you've been dealing with um some of the criticism, we don't really pay much attention to the criticisms for us. It's really just about keeping our head down and just proceeding with our business. So in the past year, I think since May last year, we were approved as a special purpose broker dealer first for custody. And then I believe at the very end of last year or of 23 or early 24 we were approved for clearance and settlement, which was the last approval we needed for at this, at the special purpose broker dealer uh in order to launch uh custody and then trading. Uh So basically, uh we're very excited. I don't know if I'd call it a needle in a haystack as much as uh the holy grail. Uh because a lot of people have been trying to figure out how to achieve compliance in the United States. And uh hopefully, we are one, if not the, uh the one who's leading the pack. Last time we spoke, there was some skepticism, you know, that, how could this person, how could this company figure this out? How could they have found the Holy grail? Um When someone, other companies in the United States just have found it very difficult to work with the SEC as you know, the SEC has been in court with many other crypto firms in the United States. What's the answer? How, how did you figure it out? I don't know if people appreciate this, but we followed the law. I think a lot of other people sort of wanted the law to change, to meet their needs. And we basically built our technology and accomplished our licensing within the frameworks that were established. You know, uh there's been a lot of conversations about we need new laws because existing laws can't handle digital assets. Uh I think we're proving that's an incorrect point and almost moot at this point, Promethium has said that Ether will be listed on the platform as a security. This feels like there is a disparity there. Talk to me about how you're viewing Ether is Ether a security in the eyes of Promethium. Promethium believes that the overwhelming majority of digital assets are securities. Almost every smart contract based network investment that its network token uh has real features of a investment contract and therefore likely qualifies as a security. Ok. I have to ask you about this piece on the Ether conversation. I'm sure, you know CFTC, Chairman Rosin Benham told the House Committee on Agriculture on Wednesday that Bitcoin and Ether are commodities and that any claim that your company promethium is making to the contrary, is actually not reflective of the SEC stance. Any response here, Chairman Denham is the chairperson of the CFTC. Uh We understand that thought process. Our regulator is the SEC and the chairperson of the SEC has said that they view the overwhelming majority of digital assets as securities. Uh So, uh we will comply with the regulators and our regulator is the SEC and we believe that uh whatever the SEC says, we will be complying to proceed with. Have you spoken to about his stance on Ether or maybe I shouldn't even out. But have you spoken to anyone at the SEC about their stance on Ether? I've not spoken to Chairman Gensler about their stance on Ether. I've never actually spoken to Chairman Gensler. How do you determine whether or not Ether is a security and then listed on the platform. Our point of contact is our regulator, which is the self regulatory organization that our broker dealers are regulated by, which is Finra. Uh And essentially uh based on how our licensing work and the procedures we have, we have to do some sort of investment contract analysis to make a determination. Uh And we are confident in our analysis. Promethium was created in 2017. Here, we are almost seven years later. You are launching the platform very soon. You've told me, but there's not yet a date. Am I correct in saying that when you major tech products, particularly if you think about custody, which is like the be all and end all of, you know, difficulty in the digital asset space. I would argue because there is no DTCC, there is no NSEC or the line of last resort. Uh It's a big lift and a major effort. Obviously, it's taken a bit but uh why I don't want to be pegged down to a specific exact date uh is because if we're like a week later, you know, that's how it goes. But I would say, let's see what's today, March 11th, the next 30 days, maybe, maybe 3035 days. You know, it's really, really close, be careful, you know, I just got in 30 to 35 days approximately. Let me let me qualify it with that. Listen, we're really excited for it. Our goal from the beginning was to be compliant under the securities laws. So you have to follow what's being laid out and work within those frameworks. And while, uh you know, it takes a bit, I think that's worked to our benefit and registering before. Whether it's the holy grail needle in a haystack. What sort of, you know, analogy you want to use for it? I think that working within those frameworks being patient and doing things the way you view compliant under the securities laws has hopefully worked the company's benefit. But I think overall we will actually, and you work to the benefit of the actual investors because they'll have the protections of the federal securities laws. They'll have the assurances that markets should be fair and orderly. They'll have the protections when it comes to their custody of their assets. Such, you know, their investment decisions determine whether they would make or lose money, not how that actual financial institution operates. You know, because when they go belly up, they basically have no protections. So um I think that having those protections will allow investors to be able to actually sort of, I must say responsibly participate, but that's not it, but participate in this way that allows them to be protected and ensures that there is proper oversight and regulation of the financial platforms that are actually doing those activities on an ongoing basis, which I think will actually basically allow investors to feel more comfortable in the digital asset space. Unpack that a little bit for me, for our audience. When we talk about investor protection, what's going to be different on promethium versus let's say a centralized exchange like Coinbase, what are the critical differences? A lot of the virtual currency exchanges chose to operate under Money Service Bureau laws. They had money transmitter licensing and those licenses are really meant for uh payments and remissions. Like, like it's not like it's not meant for how people are supposed to actively invest in a space such that they're, you know, basically operating similar to how equities operate. And I think that makes it a lot harder for there to be ongoing and proper oversight and also the protections of the customers to make sure that, you know, there's no shenanigans going on. Whereas when you're licensed under the securities law is basically, you have ongoing examinations at your SRO level, you have your ongoing reporting requirements, you have basically uh continuous oversight and you have a regulator who understands how investors have historically dealt with assets. So I think uh just from an experience and sort of a uh suitability standpoint, uh you could, you could make a significant argument that the SEC is a much more suitable regulator than a state licensed Money transmitter. Can you tell me what other assets are going to be listed on the platform? I referenced earlier. I I think that the overwhelming majority of digital assets are securities. Uh not just that any smart contract based network token I would say is very, very, very likely security. And our goal is to be able to support the largest and most liquid assets in the uh overall space. We're basically an ecosystem that's licensed for public trading through our A TS and has the ability to virtually instantaneous settle at our special purpose broker dealer. So have we not in some sense, put ourselves in a position where the future of equities? You know, people are going to be issuing equities on chain via digital assets, right? They need an ecosystem that can support that. Now, traditional securities exchanges can't. But why would you choose an asset, uh choose an exchange, a traditional securities exchange when you're gonna have T two? They will never, I mean, I don't know if never, but it'll take a really long time to go to T one maybe and then T zero. I don't know if that's even possible. Whereas you can go to an ecosystem like promethium issue your equity and have instantaneous settlement. So like it's, it's, it's very interesting. You have the virtual currency bucket, right? And there's potential sort of uh opportunity for us there. You have the tokenization bucket, which I, I would say we're one of the only, if not the only licensed entity that can actually support those assets once they're issued meetings with public trading clearance settlement custody. And then finally, you have this what's gonna happen with the traditional securities exchanges, the NASDAQ, the mice, the CBS, because they're all trying to transition to this holy grail of instantaneous settlement. And I would argue that we are way ahead of them there. So it'll be very interesting uh going forward as the industry continues to grow and we see more of these assets migrating on chain now, correct me if I'm wrong. But it sounds like you're saying that Promethium can offer a solution to traditional exchanges who want to bring traditional financial products on chain or real world assets on chain. Is that the case? I believe I was listening to some sort of song and they quoted Louis the 15th who said pray Moi de Deluge, which means after me comes the flood. So I think uh after I don't mean me personally, I'm saying after Promethium, uh there will be a lot of other companies who are basically looking to be licensed in a very similar fashion. Now, when you reference um virtual currency exchanges and the existing players who are looking to basically get into this real world assets. This tokenization space, I would say there's major issues there because the overwhelming majority of tokenized concept tokenization concepts are securities on chain. Their licenses are not for securities, so they cannot handle that. So essentially like you're basically like saying are we can handle virtual currencies but tokenization is securities on chain. Basically, your licenses are not for securities. You've admitted that. So how are you going to empower these assets? And the only way you'll have public trading is you also, you have to have the ability to clear, settle in custody. So I think that we can significantly empower that. Uh and not just like, I don't even know if it's possible using the virtual currency, state licensed uh money transmitter and, you know, state licensed custodian infrastructure, which isn't meant for securities in the first place. It sounds like what needs to change is the entire system. There are, you know, state licenses, there are federal licenses, there are all of these government agencies that are saying we, for example, I I told you CFTC chairman said one thing, yes, he has sec hasn't really said another thing. It just sounds very confusing. Erin and, and you are like the one person who has seemingly been able to figure it out, do you think that there needs to be changes at a much higher level so that the floodgates can open and there can be more promethium in the future? You know, generally the counterculture eventually becomes the mainstream. I mean, you know, people like Howard Stern were once considered the devil and now he's a uh arguably a corporate chill on mainstream TV, for some sort of, I don't know, reality show. So like III, I think that while there has historically been an aversion to our approach, the more that we just keep our heads down and move forward. Uh at some point, uh you know, people will have to uh evolve and if not evolve, evolve, they will have to deal with that in their own business considerations going forward. All right. And just before we wrap, I have to ask you if you can give us any of the institutional client names that you're working with. I appreciate the question, Jen, but I'm going to say that uh we've had significant interest, we're really in a unique position here. And uh uh we're very much looking forward to uh launching in the, you know, the very near future first with custody and then with trading thereafter. Thank you very much for joining. We were.

Learn more about Consensus 2024, CoinDesk’s longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to to register and buy your pass now.