New Web3 Head at Digital Bank Cogni Braces for More Regulation

Digital assets-focused Cogni has brought aboard a former registered commodity trading advisor to further its moves into Web3. 

Simon Grunfeld, Cogni’s new vice president of Web3, told Blockworks the bank is positioning itself to offer a compliant solution for partners for when more comprehensive US crypto regulation passes.

The executive has previously worked for blockchain-as-a-service platform SIMBA Chain, as well as for digital collectibles marketplace VeVe. He has experience in digital banking, as well as tokenomics, blockchain-based payments and exchange listings. 

Grunfeld also founded Ibinex, a so-called white-label platform that works with enterprises to develop crypto exchanges from the ground up. 

Cogni, a platform that offers members zero-fee banking that comes with access to some 55,000 ATMs, was founded in 2018. The startup moved to port Web2 and Web3 services across traditional finance, crypto, NFTs, gaming and the metaverse after a $23 million venture round. 

Grunfeld said Cogni expects to launch a non-custodial crypto wallet by mid-fall and intends to allow users to start buying, selling and swapping crypto in the first quarter of 2023.   

“That’s when things get really interesting, because now that our users have their own Web3 wallet in their hands … that means we can build an entire ecosystem around Cogni partners that want to come to the table,” Grunfeld said.

Partners could include DeFi platforms, non-fungible token (NFT) marketplaces and other entities interested in Cogni’s APIs that connect the bank’s verified users in a compliant manner.

Blockworks: What value is Cogni looking to bring to its partners as it builds out its Web3 business?

Grunfeld: We are a bank. And, as a bank we [have know-your-customer (KYC) standards] for all of our users. That means for any third-party platform that’s looking to comply with new [regulations] coming out either this year or next year, we’re already there. 

We’re already able to provide that level of comfort and remove a lot of that anxiety felt by these platform providers who are engineers, developers, marketers — they’re people who want to work in this industry but don’t know anything about the regulatory side of things.

All the metaverses, the NFT marketplaces, the DeFi, the gaming … what they’re worried about in a non-custodial solution is how can they comply with US KYC regulations if they’re doing it through a wallet-connect scenario.

They just know that if tomorrow they have to start KYC-ing people, that means they’ll have to onboard a vendor. They’ll have recurring costs, whether they have one user sign up or a thousand users sign up. We have solved that problem through a Web3 medium. 

Blockworks: What are you keeping an eye on in terms of crypto regulation? 

Grunfeld: Knowing the Biden administration has mandated, or is at least seriously trying to push [Commodities Futures Trading Commission] ownership of virtual assets, that leaves me with a very nice warm, fuzzy feeling in my stomach compared to where it could have gone — the FINRA or SEC realm.

(The Digital Commodities Consumer Protection Act, proposed earlier this month, suggests the CFTC should control crypto spot markets — specifically bitcoin and ether, which the bill classifies as commodities.)

What is it that we need? I need a definition. I need a rule-book, I need a guide. This is how you guys comply, stick to that A, B and C, and that’s it. That’s what everyone has been waiting for.

I understand commodities. This is a no-brainer. It’s so easy to comply with offering tradable commodities to retail and institutional users. There is no such thing as accredited versus non-accredited when it comes to commodities. These are not securities laws. I will comply all day, every day with the CFTC as long as I don’t have to listen to anything FINRA related or worry about anything SEC related. It’s like saltwater versus fresh.

Blockworks: How do you see the industry moving forward from crypto’s winter? 

Grunfeld: Any healthy economic life cycle goes through ups and downs all the time. But it’s also shaking off a lot of the toxic holdings. You had companies like Three Arrows, you had Voyager, you had Celsius — all of these extremely large toxic positions that were held, if there was the right compliance oversight, maybe that wouldn’t happen.

Regulation is going to help resolve a lot of these things.

The crypto winter … has been ongoing because of these massive poisonous positions that these institutions took upon themselves. They’re going to be wiped out, OK, and what’ll happen? All of a sudden there’ll be a new start and you’ll have this phoenix effect happening — out of the ashes of the old comes something new. 

Hopefully what comes out new will be a little bit smarter, a little bit wiser, won’t make the same mistakes again — and hopefully will also be wrapped up with the right rules and [regulations] to help it continue to grow and scale.

---

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.