Industry Committee on Nov. 21st, 2022

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much. I just want to return to the conversation from my last intervention about this acknowledgement in the industry that some tokens and some companies are less legitimate than others.

Mr. Garetson, on the crypto trading platforms that your company operates, is there any acknowledgement for consumers, any discernment for consumers and retail investors, with respect to what would be credible and what wouldn't be credible, the difference between what's legitimate and what's not? This, apparently, is common knowledge in the sector.

[Adam Garetson]

I can help shed some light on that.

Just to give a bit of perspective on the scale, if I had to guess off the back of the envelope, I would say maybe a million different types of crypto currency assets have been created.

Our platform at any given time will trade about 30 or 36 of them. One of the requirements we as a crypto trading platform are subject to is product due diligence, so we have to review the risk profile of the asset from a technology, operations, legal and regulatory perspective prior to making it available for trading on our platform. It's not perfect, obviously, but it is better protection than you can get in a lot of other places around the world by having market intermediaries that are held to those standards by securities regulators. Part of that is also disclosure.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

When you say “around the world”, though, you're not comparing yourself to the Canadian framework.

[Adam Garetson]

I believe the Canadian framework is one of the strongest in the spaces globally at the moment.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Then before it went bust, I could purchase Terra on your platform?

[Adam Garetson]

That's correct.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Then what's the due diligence there?

[Adam Garetson]

The due diligence is on all of those factors. As I said, it's not perfect. That was certainly a black mark on the industry writ large, for certain.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Okay, so pause for a second.

Of the dozens of products that I'd be able to trade on your platforms, how many are adding a discernible value, a real-world value today, versus how many of these tokens and coins are speculative investments that people are trading with the hope that others will perceive them to be more valuable and they will trade up down the road and then they'll profit as a result of that speculation?

[Adam Garetson]

I think there are a number of questions built in there, but the way I would like to address it is from a marketplace perspective. You'll hear a similar sentiment coming from regulators as well.

We're not in the business of picking winners and losers. What we are seeing is that Canadians are interested in potentially picking winners and losers, investing in speculative assets. What we are doing is—

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Despite the fact that there is no....

Look, there are penny stocks in this country, and there's an underlying business case to those penny stocks, but they may be worthless in the end, right? However, we're not listing a venture that has no underlying...just to say “This might be worth more.” What did SBF say? It's a box, and the more people who have money in the box, the more other people see it as valuable, so the box has more value.

Isn't that something we ought to prevent, from a retail investment perspective?

[Adam Garetson]

I think one of the ways to look at that question is that disclosure is certainly very important when a new asset is created. It's what's being said in the white paper that creates it, what is being said by the founders.

Platforms like ours have to provide disclosure statements and risk-acknowledgement forms to the individuals who are going to be trading in those assets. Really, education and disclosure are key to addressing that perspective.

Again, we're an evolving industry looking to get it right and as right as we can. As I said, we're in a stage of evolution, but where we are focused is on disclosure and education for investors in making investments.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

If we're educating investors, how useful do you think this education is?

After the fraud of SBF—after the fraud—your principal investor, the namesake of your firm, the so-called Mr. Wonderful, was out there publicly saying that he was one of the most brilliant traders in the crypto universe and he also built one of the most robust platforms: "We used FTX actively.” Then, when asked whether he would invest in it again, he said yes.

What education are we really bringing to bear with comments like that?

[Adam Garetson]

That's a very strong point.

Mr. O'Leary's comments in that regard were his own with respect to his own investments, so I can't speak directly to that.

What I can say, from a platform perspective, is that I'm very happy that our regulators require us to put out disclosure statements that are prescribed, and we do everything we can to make sure we are adhering to those guidelines on a real-time basis.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks very much.

To both Mr. Garetson and Mr. Thomas, I would very much like to know, in your view and your companies' views, how you think we can better protect retail investors in this space. If you can follow up in writing at some point with some suggestions for what we might consider, I would appreciate it.

[Adam Garetson]

We would be pleased to do that.

[The Chair, Liberal, Joël Lightbound]

Thank you very much to all, and to our witnesses.

I will echo my colleagues. This has been one of the most fascinating meetings of this committee that we have had. I take a keen interest in this subject, so I appreciate your taking the time. Thanks to all.

This meeting is adjourned.