Episode 49: Yoni Assia - Co-Founder and CEO of eToro

0:00This week on Generating Alpha, I sat down with Yoni Asiya, co-founder and CEO of eToro, a social investment platform with over 35 million users and more than a trillion dollars in facilitated volume. Yoni grew up in Tel Aviv, served in an elite IDF intelligence unit, and launched Etoro in 2007 with his brother Ronan. The platform pioneered social trading, giving ordinary people the ability to automatically copy successful investors. In 2010, Etoro launched CopyTrader. In 2012, Yoni was co-authoring papers on blockchain alongside Vitalik Buterin before Ethereum even existed. Today, eToro is valued at over$2.5 billion and has been a driving force behind legacy brokers eliminating commissions.

0:41In our conversation, we covered the philosophy behind social trading, building with his brother for nearly two decades, his early work in crypto, and his view on the future. If you enjoyed this episode, please follow the podcast and rate it five stars on Spotify, subscribe on YouTube, and share it to anyone who you think might find it valuable. I really enjoy speaking to Yoni, and I hope you guys enjoy listening. Thank you. Yoni, thanks for joining me. Really appreciate it. Thank you very much. Thank you for having me. Well, I want to start where I always do, the beginning. Your father, if I'm correct, founded a company called Magic Software.

1:12Your mother runs a copyright law firm. Your dad would stop the car outside the bank to look at stock quotes when you were growing up and discuss them with you. Very interested. Tell me about growing up in that household. What was young Yoni like? so uh as you know i started the company together with my older brother so it's always interesting to get like the perspectives of uh two brothers who grew in the same place where i you know totally like admired my father and his work and joined i think i started doing presentations for magic software uh when i was very young like powerpoints and cad and 3d stuff i started programming on magic when I was very young.

1:56And like, I always knew I wanted to be CEO, founder and build a company. My brother went into art. So I did master's in computer sciences. My brother did eventually master's in the Royal College of Art and Industrial Design. And like, our perspective was very different growing in the household where I thought that business was super, super interesting trying to replicate it and sometimes Ronen actually saw sort of the stress and how intimidating businesses and and that actually led to the invention eventually of Vitoro because he used to tell me I have an accountant hobby since I was 13 he used to look at what I do and say like you're sitting with multiple screens charts excels uh you you know you bring the paper with the stock quotes every evening.

2:47And I look at what you do, and it just looks the most horrible user experience. And that's sort of where it clicked. And we said, okay, let's build an investment platform, a trading platform, where we simplify the user experience and make it easier to open the global markets for everyone to trade and invest in a simple and transparent way. And you told me you were kind of doing this kind of stuff from the age of even 13. What were those early experiences like during your teenage years, kind of getting into business and being entrepreneurial? No, so 13 was less entrepreneurial. It was more about when I started trading.

3:30And I remember like my first stock trade, I always say like three big aha moments, now four big aha moments, but now maybe accelerating my aha moments, but was like figuring out the internet very young, right? So I was not born into the internet. And then I remember like downloading Simpsons episodes in text back in the 90s. I feel so old now. And then my first trade when I did it, and I realized like, I just clicked something on the internet, and it changed the price of the stock. And I was like, whoa, I'm like, you know, a young kid with access to a very small account. But when I swipe the bid, a bid ask in the book, it actually changes the price in the stock market.

4:18So that for me was like an aha moment of how everything is connected in capital markets and the money markets. And then the third and fourth would come much later on, which is Bitcoin at early beginnings in 2010. And now absolutely mind blown by AI and just playing with my open claw the entire last week, which is quite crazy. And if I'm correct, before eToro, you founded a business called CD Ride. Tell me about that and how that kind of led to eToro. What was the idea behind that business and how did it ultimately lead to you starting eToro? So CD Ride was more about taking that entrepreneurship step.

5:00So I was a programmer in the IDF. So I already sort of learned to launch and ship code and manage wide scale projects. And then a couple of colleagues of mine from the army unit basically told me, hey, we're building this business. Do you want to join us as the VP R &D, as the basically who runs the software? And we set up that business actually like in my parents' basement so they were older we had we were five partners four of them were uh still with their day job so i was actually the only one sort of full-time on it and i was in charge of developing uh both the hardware an actual computer uh today you would probably do this with a chip a much simpler one but an actual computer a hardened computer that we installed on a roller coaster connected to a camera that's hardened to go through weathers on and and then the roller coaster would go and basically take a video of your entire ride and when you go down there was like a setup with servers where the video has been sent in wi-fi to those servers with screens showing your entire ride edited uh in video so that was my first startup uh i actually joined it as a co-founder and a development manager just out of the army when I was about 21.

6:31And we eventually, you know, it was really building hardware. I was spending my summers in places like Paramount and Universal and Wonderland in Canada, which was freezing, basically in the booth, debugging hardware, software system, taking photos of people. at that point, did you realize that was not what you wanted to do? Or did you realize how did you get to eTora from there? So one of my conclusions, which might change in the future now that everything is sort of opening up and suddenly software is no longer a bottleneck, is that my conclusion was two things to like key learnings was the business plan in my point of view simply didn't connect, right?

7:17So I told my partners, listen, we're spending a ton amount of money on a system that the parks are not willing to pay for. And I told them, we're never going to break even on these installations. We're just spending money. And they were like, no, in two years, you know, we'll actually recoup the funds. And I tried to sort of minimize the costs and eventually came to sort of a disagreement on the business plan. That's one. And I learned a lot of business planning and projections and excelling out of that. And the second was like, I really didn't like the hardware part. So I remember we ordered something like 50 Wi-Fi chips.

8:04This is like a form factor that I don't know if exists yet today, still today. And then the firmware on the wi-fi chip changed the entire software broke like delays of like a month and a half to the process so this was during my master's in computer sciences i was like okay i want to deal only with software yeah from now on and i actually knew what software i wanted to deal with because my first degree uh seminar was uh in basically the domain of finding patterns in capital markets based on physics. So I always knew I had this passion for the intersection of finance and technology. And my master's in computer sciences, final work was how do you visualize on what's called today heat maps, almost didn't exist there yet, except sort of in financial, in like articles, academic articles.

9:00But how do you present the stock market and financial heat maps was my seminar on visualizing. And when I started talking to my brother, this was 26, we were both actually thinking of the same thing at the same time. So I was thinking of it more from a trader point of view. And my brother actually just did a work for Bloomberg, where he was designing the Bloomberg screens for Bloomberg. And because you probably know how a Bloomberg terminal looks like. And by the way, it still looks exactly the same today as it did 18 years ago. And what was interesting is that at the end, his conclusion was financial institutions like Bloomberg, like banks, don't really want to improve the user experience.

9:51because something about the complexity and sort of ugliness of that software is what makes it attractive to professional traders and investors and sort of pushes the retail investors out of it right so that was like our 2006 conclusion was actually everybody's against retail investors being in the market from how they're developing software uh by the way that still exists today is a paradigm in most financial institutions. Like they don't want you to log in every day to your app. Why is that? Well, there is an old notion which comes from actually like human capital, right? Which is we don't want you to come to our bank every day.

10:35We really want you to come to our bank once every six months or 12 months because it costs us money when you come to the bank. And if you came to the bank, we're probably in a problem because you came to the bank with a problem or you're leaving us and that state of mind actually sort of resonated to how most financial institutions worldwide still think about the interaction of a customer and software so even the big banks today wealth management i'm talking about like you know the goldmans and cities at ubs like really large companies they they have a really really bad experience in their app sometimes you can't actually execute in the app at all like the logic in wealth management is we don't want the customer to actually make decisions in that because then he's not reliant on us and uh he might actually sort of start being more expert and won't need us uh so it's like very old notions that I think right now a lot of fintechs are breaking those notions and fintech you know when we started eToro we had constant arguments in the board not you know debates but with Israelis it always sounds like arguments where are we a tech company or a financial institution right this was before the term fintech existed uh and we had that until like probably 2013-14 when suddenly you know another fintech another fintech another fintech and people started calling this fintech.

12:09So I think this entire industry is about changing the paradigm to we want our customers to actually engage with our software every day. And we want them to feel as they're hooked into the platform and use more and more of our products directly on the app. And we believe that a better engagement and an enjoyable experience with the app would lead to a higher retention rate and a higher engagement of customers with eToro. And is the vision for eToro to be only for a specific customer function, such as if they want to trade, I don't know, a certain type of equity or if they want to trade crypto or something, or is it more for them to be their one-stop shop at one point for all of their investments?

12:54We're definitely on the path to building an investment super app. So we covered today stock markets from 25 different capital markets. We're the only new brokerage actually covering 25 different capital markets, some more similar to interactive broker than to a Robinhood. We cover a bank accounts. So multi-currency accounts, dollars, euros, pounds, Australian dollars, where you can actually send and receive payments and get a visa debit card. So we're basically entering into that space of neo-banking for spending and for banking. and sort of the core idea of eToro or the core mission is to help our customers connect with smart investors to increase their knowledge and wealth in capital markets.

13:43So we support derivatives, we support about 200 crypto assets, we support stocks from 25 different markets, options, futures, and the unique part of eToro, it's a social network where everybody can actually see the performance of each other so we can trust each other because it's not like Reddit where you have no idea who you're talking to. You're talking to a person with a name, with his track record, with his open portfolio. You see everybody's performance. And then the unique part of eToro is the ability to copy them and copy our smart portfolios. So we have today 5 ,000 popular investors enrolled into our pro-investor program.

14:22Some of them have mind-blowing results and sort of leads to how we started eToro. I have always believed in myself as a retail investor and that people that have talent and passion about capital markets don't need to work in a big bank or in a big investment house to actually generate returns. And that's what we're seeing in eToro. Our top pro investor has now$300 million copying him. So he started as a retail investor in eToro, Now he has a six-year track record with about 30 % average return. Our second one has 12-year tenure in eToro. So he's been 12 years in eToro with a 29 % average return and has$200 million copying him.

15:04And they're making money out of the fact that other people are copying them. So when we look at sort of the business and the four different parts, it's trading because we believe in trading and we believe in active traders. And we believe that people should experience trading and over time decide whether it's for them or not. But trading is higher risk than investing. We believe everybody should invest in the markets because over time, the S &P 500 and Nasdaq does much better than having your money in a bank deposit. And that's very, very clear. And nonetheless, most banks around the world, especially outside the U.S., would still very much push customers to be afraid of capital markets.

15:52Where in the U.S., that doesn't exist. Everybody believes in capital markets. In the rest of the world, you ask 10 Italians, do you believe you can make money in capital markets? Five out of 10 will tell you no. My father told me it's gambling. So that's investing and the ability to see other people generating returns on the platform is a core part of that increasing belief to retail investors that you can generate returns in the markets. And of course, the capabilities of copying our top investors. So when you copy a top investor, you choose an amount of$1 ,000, click copy, it copies its entire portfolio into your portfolio.

16:27And every time they trade, it trades in your account at the same time, the same price and the same proportion. and we have a chief investment office in eToro that created about 125 smart portfolios that basically capture almost every strategy of the people that you interviewed here. So from value investing, which I had the luck of meeting Warren Buffett, to fashion investing, which I had the luck of meeting Bernard Arnault, to actually copying people like Stanley Druckenmiller. uh kill copying is 13f or uh investing in long short momentum strategies which are more similar to stevie cohen 0.72 or eases millennium so the great thing about what we've built it's basically a platform for retail investors to experience the entire range of self-directed investing and investing in things that replicate mutual funds, active hedge funds, active ETFs, regular ETFs.

17:31We have thematics, so we find out what's interesting, and we basically build those thematics in like, within 24 hours, something happening in the market, we're going to launch a thematic around, we saw something that our users did yesterday, it's interesting, now invest in a smart portfolio in nuclear energy. And one thing I'm really interested on, if we could take a step back, is you founded eToro in 07, if I'm correct, and then the financial crisis hit. And so it must have been a really kind of interesting experience and informed how you see financial markets and how you ended up building out eToro.

18:06What was that like? What was that experience like? What did you learn? What did you come out of it knowing? So first of all, I think I always say that the market corrections and crashes are actually very important to not only the cycle of markets, but the education of people in the markets. The most important thing people need to understand is market cycles, and the markets don't always go up in a straight line. I had that experience in the dot-com bubble. that was, by the way, after that my seminar, my first degree, was bubbles and bursts and how they're basically completely unrelated to anything related to the underlying asset or to even humans.

18:47It was AI agents. I built an AI agents in, I think, 2003 who are actually running just one thing. Look at the entire history of trading and decide whether you're buying or selling right now. It's called Minority Games, by the way, which is a fascinating article now to replicate. and you actually see that what it creates is that the markets go up, up, up, up, up, up, up slowly and then crush. Up, up, up, up, up slowly and then crush. And it's very interesting that AI agents with zero, there is not like all they're seeing is an asset and it's price over time and it acts like this, right? It's information theory.

19:23It's somehow physics or math. So first of all, I knew that experience because of the dot-com bubble. What really surprised me as a fintech entrepreneur very early on to fintech is how disconnected like banks and financials and financial reporting are from what I would expect back then, like real time. I expected like to find finance in a real time space. So my financial reports are updated in real time. Everything always works in real time. And then I realized everything works in T plus one and T plus two. Settlements are slow. You basically realize what you did with the banks only two days later when they send you basically an Excel spreadsheet.

20:10And when we had the crash, the other thing that amazed me and eventually led me to sort of my obsession around crypto is we actually saw the market sort of stop functioning. So in the global financial crisis, it's like somebody pulled the plug. You have these stories from the 90s where there is a crash and people don't answer the phone. By the way, that was the beginning of digital trading because basically the SEC said you have to have a way for people to execute. What I found out is the euro dollar, like the even most basic thing, which is currency trading that's supposed to trade 24-5, everything was shut down.

20:51The banks sort of pulled the plug for a while, and you waited to figure out whether the bank you're trading with is going to open in the next morning. You can't talk to anyone. The markets are shut down. And that led me to sort of say something is really broken in the system. This is a system that's supposed to be 24-7, always on. I know technology can be 24-7 because the internet is 24-7. This was already like 12, 15 years after. it's very obvious and the financial system just you know pauses at 5 p.m or 7 p.m and things just stop working and that eventually when i saw bitcoin for the first time i was like this is how everything in finance should work like we need to have like a shared blockchain a shared ledger between everyone and it should be working 24 7 and nobody can unplug from the system uh their customers.

21:48So that led one to that. And second is to what we eventually build as our nonprofit called the Good Dollar Project, which is it also represented in my point of view that something is broken out only in the tech stack of the financial ecosystem, but in the distribution of wealth in the financial system, which is, you know, the people who got eventually screwed the most from the global financial crisis are the people who had the least, not the people who had the most. And then when I started sort of looking at it and reading throughout that time, I realized like it's all about how do you give out interest rates and how is interest rates supposed to be given.

22:30And I realized that actually it should be, in my view, like the opposite of what it is today. you should get less interest rate if you have more wealth. But in order to do that, you have to build a blockchain-based system or a completely transparent ecosystem where you have another identity that's connected into a ledger. So whoever gives the interest rate can actually give more to those who have less and less to those who have more. And eToro is building this global network, if I'm correct, over 40 million users across 75-plus countries. But as you grow, I'm interested in where does size work with you and where does size work against you?

23:11Because obviously you're building a network, but then also in terms of if people are copying these massive portfolios, people are taking larger amounts of trade, there can be more slippage to be had or things like that. Where does size work with you and against you? So I think generally our business is extremely scalable from a size perspective. so you can look at sort of some of the strategies of for example hedge funds sort of hit a ceiling yeah because they're like okay we can generate 50 returns a year but if we take on more money we'll actually generate 40 or 30 you can look at sort of d shaw which said okay we can make better 50 70 a year on our quant rating but we want to raise more money let's start investing in real estate and blend it.

24:02Right. So I think in different trading strategies that are focused on generating alpha, you have sort of a cap to how much you can sort of raise. But when you think of companies like interactive brokers, when you think of companies like us, when people manage their own decisions, then there's no limit to scale because we can have 5 ,000 pro investors, they could be 10 ,000 tomorrow, each of them can with a 10 ,000 manage$10 million potentially. And$10 million is not a lot because there are already more than 10 ,000 ETFs in the market. And those ETFs are managed in a very certain way to things that we are developing in eToro, Right.

24:52And when customers have that choice, then basically scale doesn't become an issue and we can eventually aspire to have a trillion dollars of assets in eToro. And I'm interested because, as you mentioned, you built this business with your brother, Renan, for nearly now two decades. It seems that he's more focused on the design front and you're more focused on the technical and like markets aspects. But as kind of a partnership, how do you make decisions when you two disagree?

25:28Well, I generally say, you know, we try to come to an agreement like in many, many cases, good boards as well. And so only my brother, you know, we're also a public company right now. I have a board in that board. Very smart people. So the founding family of the largest investment house in Israel who managed about one hundred and forty billion dollars. and one of the founding partners of Spark Capital, who's one of the best VCs in the US, Laura, who's an ex-SEC chairwoman. So a lot of smart people are on your board, but you aspire to come to a board and the same as with my brother, where sort of you talked it out and came to a conclusion that this is what needs to be done.

26:18And eventually, you know, I'm the CEO. So I need to make sure that people sort of understand the risk, the potential. Sometimes it's OK for people to say, hey, I wouldn't do it. I don't think the cost benefit risk is worth it. But, you know, if you want to do it, do it. Just make sure that we know where to win and where to cut our costs. And you talked about that kind of aha moment you had with Bitcoin at one point where you saw it open 24-7. It's peer to peer. It's decentralized. How does Bitcoin and crypto factor into eToro or how has it? Well, we were very early to Bitcoin. We started buying Bitcoin at about$5,$10 of those Mt.

26:59Gox screenshots. We transformed like$50 ,000 into$50 million between 2012 to 2017. Unfortunately, sold it as the market grew. but it was pivotal to our growth because at 2017 we started the year with about two percent of our customers trading bitcoin after we launched it in 2013 so for four years nothing happened and then in 2017 we added eth when it was about four dollars to the platform and then we started adding more and more cryptos to the platform at the beginning of the year we opened about 200 funded accounts a day at the peak of i think it was december november 2017 we opened 20 000 new funded accounts a day so we had the explosion of growth which forced us to really optimize and automate everything preparing us later on to 2021 a crypto rally with a perfect storm actually in 2021 having sort of both the meme stock rally and the crypto rally which are very related because these are sort of generational thinking that you don't need like the most detached type of investing you have from value investing almost the opposite right so no intrinsic value and still people are making money and still people have their strategies it's a high higher risk because you don't have sort of the lower bound where in value investing and dcf you always have that lower bound right so the concept of value investing is find the lower bound if something trades below its lower bound buy it right growth investing is estimate the growth of the business have your intuition around the 10 years growth can it be a double digit growth for 10 years and then the current value is irrelevant because the value of growth compounding in 10 years is so big, like current profitability doesn't matter.

29:05That's very, by the way, US, Amazon initially led thinking in the US, followed by Tesla. And then you have no intrinsic value investing, which is really about a hypothesis of what is the crowd going to do and a hypothesis about market dynamics, which is much more related to trading than investing. But that's how the markets work. Before we go back to the episode, I want to take a short break to talk about my sponsor, Rowe. The Generating Alpha podcast is presented by Rowe, the all-in-one banking platform for startups. Thousands of startups like Perplexity, Product Hunt, and more use Rowe. You get everything you need to manage your startup's cash.

29:47Fast banking setup, cards with a 2 % cash back, and yield that turns company cash into extra runway. All super important in the early days launching. But the thing founders really love about Roe is their team. They're obsessed with helping founders disrupt the status quo and will go to the end of the earth to help them to do so. And exclusively for Generating Alpha podcast listeners and viewers, you'll get a$1 ,500 statement credit plus a ton of exclusive perks when you manage your company cash with Roe. Terms and conditions apply. To learn more, visit rho.co slash generating alpha. Roe is a fintech, not a bank.

30:24Checking and card services provided by Webster Bank, member FDIC. See your award terms for details. Thank you, and back to the episode. And in the past, even in the past six to seven years, you've seen FTX, you've seen the Silicon Valley bank crisis, you've seen meme coins, you've seen GameStop, you've seen COVID. What has all this, not only in the past six, seven years, but over the entire period of eToro taught you about building a resilient business, one that can really weather through crisis and a real institution? So someone, a partner in Goldman once told me that, you know, we're all in the business of selling risk, right?

31:07So everybody in finance, you're either buying risk or selling risk. Therefore, you're in the business of risk management. So first of all, I think I have very, very high regard to risk management. I think risk management is not about necessarily reducing risks. It's about managing risks. So our deputy CEO was the chief risk officer of the largest bank in Israel. So we brought in a lot of talent in risk management. And I think there's a lot of responsibility that sometimes people take too lightly when you manage other people money, right? So when you manage other people's money as a fintech, you don't have the ability to say it's a bug.

31:52Sorry, you lost your money because of a bug. You can have outage in a social network. You can have bugs in software or in games. But when you think about money, I used to say it consistently for at least the past 10 years when it became sort of clearer that we're managing large amounts of money, right? about$20 billion at the end of September we're earning Toro, is we need to remember that a person can come to eToro with$100, but another person can come to eToro with a million dollars. And the person who comes with a million dollars trades more frequently, uses a s'more. So any small glitch, anything that he sees that doesn't work means we lost a customer of a million dollars, which is worth like a thousand customers of a thousand dollars.