What you need to know
The bank's core offering of custodial, brokerage and risk management services for crypto companies is unique.
Ryan Terribilini is an unusual catch for Taiwan, a genuine tech star with academic credentials that stretch to the moon.
The 30-year-old San Francisco native is cofounder and CEO of Formosa Financial (FF), a Taipei-headquartered and Cayman Islands-registered startup that aims to bridge the global community of crypto innovators with access to traditional financing and consultancy services.
Perhaps more than most expats here, Terribilini has justification to be posed that all too common of questions: “Why are you in Taiwan?”
The short answer is because he likes it. He has felt this way ever since a 2012 work exchange as a senior strategist at Google first brought him to the island and the tech titan’s offices on Taipei 101’s 73rd floor.
But while Terribilini’s genuine affinity for Taiwan was certainly a driving force in bringing him back, there are more convoluted reasons for FF’s offices opening here, not least a restless drive to establish something uniquely his own.
Terribilini first encountered crypto while overseeing and enforcing Google’s payments strategy on the Android app store.
“I’d come across it in a few apps that were trying to circumvent Google’s payments monopoly in the app store and find a way to pay app developers directly in Bitcoin,” Terribilini says from across a desk in FF’s newly furnished offices.
Crypto curiosity then led him to track a colleague from Google to Ripple, which one year after its founding was working on a distributed open source protocol that would leverage blockchain for payments.
His mandate there as Head of Developer Relations and Platform Partnerships was to take his experience developing ecosystems for Android and apply it to blockchain’s public infrastructure – but he soon encountered headwinds.
“Blockchain opens up a lot of creativity and visions in people’s minds but then taking the steps – technical, regulatory, legal, banking – it’s a whole new paradigm, a lot of risks that banks aren’t willing to take,” he recalls. “Ripple’s focus is blockchain for payments – value movement. Ultimately it wasn’t realistic to expect that ecosystem to develop without supporting legal and financial infrastructure, which is when we started working with the banks and taking that to the developers.”
Ripple’s XRP ledger is now renowned for being favored by multinational banks for payments and settlements. The experience of putting those partnerships in place planted the seed for what would eventually become the Formosa Financial concept.
But it was an entirely different proposition that propelled the softball-playing Tottenham Hotspur fan back to Taiwan.
Leaving Ripple in 2015, Terribilini took in 10 months studying Mandarin at National Taiwan University, before moving on to the University of Oxford’s Master of Public Policy program – where he retains a a position as a research associate at the Centre for Technology and Global Affairs.
His original intention in landing back in Taipei in fall last year was to leverage Ripple’s decentralized blockchain to take advantage of a form of regulatory arbitrage. “Taiwan has an offshore banking system where you can get renminbi accounts…I wanted to create a digital version of the renminbi on a decentralized blockchain [on which] no one can stop the trading of assets – and have those fully reserve backed in an offshore account in Taiwan.”
This would have coincided with Beijing’s crackdown on crypto exchanges while being positioned to absorb the homeless trading volume – a very viable proposition were it not to have required more immersion in China than Terribilini was prepared to indulge.
In the meantime, he was rubbing shoulders with Taiwan’s tech glitterati, not least e-trade pioneer and former Kuomintang legislator George Hsieh (謝國樑), who was to become FF’s other cofounder and its chairman.
Jeff Huang (黄立成) of M17/Mithril (now an FF advisor) and Alex Liu (劉世偉), CEO of AMIS/MaiCoin, were also instrumental in opening doors for Terribilini as the foundation of Formosa Financial began to coalesce.
The Formosa Financial concept
The closer Terribilini became to the crypto community, the more their frustrations resonated with his experience at Ripple: “We had a small XRP fund and we would make US$50,000 investments in startups that were trying to use the tech,” he says. "Banks would ask ‘What’s your business?’ The second you say blockchain, crypto, they’ll say ‘No way – too much risk, we have AML [anti-money laundering] concerns].’”
That gaping wound of a pain point, the difficulty in even opening a corporate bank account, underpins FF’s offering.
Hsieh, who is a serving executive director at the Keelung-based bank KSCC, was instrumental in FF securing a Taiwanese banking partner, which will remain anonymous for the time being – at least until Taiwan clears the Asia/Pacific Group on Money Laundering’s auditory visit in November.
“Banks have a lot of AML concerns because of this impending audit and there has yet to be any regulatory guidance from the Financial Supervisory Commission (FSC) on the nature of crypto and blockchain applying to the existing AML laws,” Terribilini explains. “The hope is there will be more clarity from the FSC on opening crypto company accounts that can provide a set of best practices and clarity to the banks.”
Alongside traditional banking, FF is working with an industry leader responsible for handling 15 percent of all the value across the three main blockchains – Ripple, Ethereum and Bitcoin – on web-based custodial services.
A Taiwanese partner pioneering what Terribilini calls a “very cool” form factor will take care of the hardware storage solution.
FF’s second core offering is brokerage services – put simply, the way FF’s clients will move between fiat and various crypto holdings at minimum cost. “We’re going to trade volumes on multiple customers’ behalf and that will drive down the ultimate cost that we pass on,” Terribilini says, adding that once all authorizations are complete, FF will have accounts with the five most liquid USD-fiat exchanges and the three top OTC brokers.
Crucial to its ability to act as a broker is the recent confirmation of provisional approval for a license to operate a virtual currency exchange in the Cagayan Economic Zone Authority (CEZA) – a Special Economic Zone (SEZ) in the Philippines.
“The license allows you to do crypto-fiat, fiat-crypto or crypto-crypto trading. That is the brokerage service that we want to offer and along with it there are banks in the Philippines that are willing to work with license holders, and that will apply for any currencies that those banks support other than Philippine peso. It’s a separate free trade zone from the rest of Philippines law which gives it more flexibility when working with clients like us.”
Terribilini is keen to stress that the issuance of the license also gives FF a regulatory green light: “It’s a regulator signing off on us saying we’re capable of running a high risk business.”
And risk management is the final and most complicated element of FF’s proposition. FF aims to solve that most thorny of conundrums facing successful ICO companies: What to do with all that juicy Ether.
A recent report, “Crypto Utopia,” released by Autonomous suggests more than US$20 billion has been raised by crypto projects since the start of 2017, with US$18 billion coming in the last year.
“If you’re running a Fortune 500 company, you don’t leave unhedged renminbi on your balance sheet, but all these crypto companies are running with the most volatile thing ever and that’s the lifeblood of their company,” Terribilini says.
“Trying to offer things like interest on your crypto to capture the time value of your Ethereum, or locking in the rate, that’s basic stuff that companies need,” Terribilini says. He added that as of today, FF will be working with Compound protocol, a Silicon Valley-based startup with funding from Andreessen Horowitz and Polychain Capital that is working on creating an algorithmic money market for Ethereum.
“We can help our customers put their unused Ethereum into this protocol, where it can earn interest,” he says. “It won’t be a capital risk to our customers as we are going to try it with our own money first.”
The company completed a private raise of 40,000 Ethereum in May, and issued its own token, FMF, in June. “Within the next few months we’ll list on the top exchanges,” he says. “The idea is that the token creates a new economic incentive model for people that want to become our customers. So if you hold the token you can access features of these various services depending on how many tokens you hold.”
Asked whether the FF concept is unique, Terribilini is unequivocal: “Yes. There are other retail crypto banking offerings, but I personally don’t think that concept is useful because most people tend to hodl or speculate in crypto. If I am doing either of those things, why would I go spend [my crypto] on a debit card?”
Why Taiwan, again?
He also expects to see more of crypto and traditional financing coming together, as evidenced by Litecoin’s recent acquisition of a 9.9 percent stake in German bank WEG Bank AG via TokenPay and Binance seeking to establish a Founders Bank in Malta, as the space matures.
“Anybody that thought crypto can just come in and just overtake thousands of years of history and just sweep away all the concepts of value and trust are delusional,” he says. “There has to be some middle ground – companies like Formosa Financial or these fintech banks in Europe are necessary to bridge to the existing work of finance – that’s where the river meets the road, everything else is just fantasy land.”
Given its global target market and the CEZA license in the Philippines, its worth asking reiterating the “Why Taiwan?” question, particularly when Terribilini admits that the most frustrating part of getting FF up and running has been dealing with the authorities here.
He has yet to receive his health insurance, months after applying, and laments that he was the 80th person to enter the country on its entrepreneur visa scheme, three years after it launched with a notional quota of 2,000 permits per year.
“The hoops that blockchain companies have to go through to operate in Taiwan are extensive,” he reflects. “Almost everyone is doing an onshore-offshore structure whereas if the Taiwan government really wanted to capitalize on the opportunity they would create a clean regulatory framework where people can establish a company, give them a low tax rate and have banks that are ready to play ball – exactly what the Philippines are doing.”
He contends that part of the reason FF is going through the CEZA licensing process is to feed back information on best practice to the authorities in Taiwan, who are dragging their heels on serving an industry that feeds on speed. CEZA suggests it will reap US$68 million from the issuance of licenses alone, and will take a 4 percent cut of revenue from virtual exchange transactions.
Terribilini is also quick to dismiss Taiwan’s fintech sandbox as lacking incentive for companies based outside Taiwan as it stipulates they must serve the Taiwan market to qualify: “The chances of established fintech companies based overseas caring enough about the Taiwan market to go through the sandbox process are very low.”
But any notion of Taiwan capitalizing on its cultural and geographic proximity to China’s crypto industry, as the Philippines looks now set to do, will have to wait. Next on FF's agenda is the launch of its private beta platform, which will look to onboard five initial clients in October.
The company will then seek to scale while keeping its banking partners onside and opening up its client list to jurisdictions outside Taiwan. “Our goal is to have a partner-client pipeline that has flags planted in the world’s major crypto hubs where the world’s most innovative projects are being developed.”
That expansion will include the opening of new offices in Manila as early as the fourth quarter, and a doubling of the FF team to 20 staff.
For the time being, Taiwan will have to be content with those extra jobs and the wages they bring with them being the primary benefit of having a company like FF established on its soil.
Editor: Nick Aspinwall