Searching for Growth Avenues in Crypto

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1:36What's up, guys? It's Ash Bennington. Welcome to Real Vision Crypto Daily Briefing. Joining me today is Bundeep Singh Rangar, CEO of Phinecchia. Bundeep, welcome to the show. Thank you, Ash. Happy to be on board. Bandeep, you've had an extremely interesting life, exactly as your background suggests, for those of us watching on video. Bandeep, tell us a little bit about your background and how you got into the crypto digital asset space. Sure, very happy to say that. So, you know, I got inspired by a friend about, I think it was 2014, where a friend of mine who had been active in pre-crypto digital assets, he had a company called Navio out of California.

2:17and to his credit he had set up the first company that listed on Neumark in Germany and Nasdaq at the same time. He took everyone out for dinner in London. Friends of his had pulled together while visiting from California and said, at the end of the dinner the one thing I want you guys to do if you're friends of mine is to basically go and buy some crypto. Go buy Bitcoin. He very specifically said go buy Bitcoin. I don't care if you buy a dollar's worth, a hundred dollars worth, a million dollars worth, just go buy something. and that was our only task, which was a bit challenging at the end of a dinner and lots of wine when you're a bit in the brain.

2:50All of us having more or less managed to get something and that's where the foray began into the crypto space. What year was this? This was in 2014. So you were early to this party at a time when it was difficult to buy digital assets. You got started in it. What was it that made you go down the rabbit hole once you started seeing what this space was about? What was it that attracted you? I think there were three things that attracted to me. First of all, I'm sort of libertarian, so I do think that we should have control of our lives outside what the government has over us. Second, I do believe that currencies are highly manipulated.

3:28If you look at worldwide currencies and look at the post-colonial, post-Second World War order, the reason why richer nations were able to keep access to resources and labor in poorer nations was through currency. You had a higher pricing power to a currency. And when that began to be sort of upended, because the gold standard that was there as a benchmark for currencies got to be challenged as Taiwan, West Germany, and places like Bahrain started accumulating out of gold, well, the rules again got reset with the Brent Woods Agreement, and all of a sudden you got linked GDP to your national currency rather than gold reserves, which other countries had suddenly found a loophole through.

4:09So I do think there's a bit of what is really the subscription to a national currency. And is it really an even playing field? Why should the price of software vary from one country to the other in terms of the cost if the effort's the same? So I think somewhere it sort of resonated with me that you had a way of attributing value, because ultimately currency is all about perception of value. What makes a$5 bill or a£5 note worth what it is, is because we believe it has the purchasing power of that value. So if we take it out of the national governments and make it something that we all understand to be a common standard, that's algorithmically driven, mathematically pure, well, that had a lot of appeal to me.

4:51So that's what got me into it. I must say that I thought it would take longer for the adoption purpose to take notes. So probably didn't buy as much as I could have or should have, but there you go. Hindsight's a great thing. But still, glad to be on board since then and been an active participant in some ways since then. Yeah. So talking of which, where we are today, we find ourselves at the end of July 2023, the valuation in terms of the perception of what digital assets crypto are worth has fluctuated quite dramatically, obviously, in the past 12 months and historically even before that. Where do you think we are today?

5:23What's driving the adoption? What's driving price? And how do you see this current market? So the thing about cryptocurrencies is because they are so multidimensional, right? Is it challenging gold? Yes, because it's becoming a unit of value. Is it challenging the predominant US dollar? Yes, because it's becoming in some ways an alternative to a global reserve currency. But it's also a software, right? It also has functionality. So it has various elements that are hard to cubbyhole. And I think because it's so revolutionary and the fact that it challenges the status quo of fiat currencies and sovereign monetary policy, it does have these battles that are shaped out across the world that over time lead to their acceptance.

6:08But it's only when national governments get to understand their potential and want to control it, realize they can't in some extent, and in some extent they can't. So you're seeing that in a very Hegelian way. You have a thesis and you have an antithesis. So you've seen this play out between the pieces of crypto as laid out by the Satoshi white paper on Bitcoin white paper to the antithesis by various governments and regulations trying to wrap their arms around that. We're in that flux, right? So the U.S. has taken arguably a step backwards with all the onslaught against crypto companies and cryptocurrencies specifically, whereas other parts of the world are getting more progressive.

6:46So Europe's introduced to MICA, the markets and crypto assets. you're seeing that adopted in terms of practice across the European Union. Hong Kong has just started allowing consumer first trading in Bitcoin and fear by retail investors. Japan's making stable funds more acceptable. The UAE is becoming very progressive in terms of their virtual asset regime and what that lays out for participants. So there's a bit of an irregular rhythm across the world when it comes to acceptance. And I think that's really, really unfortunate because if you had a global standard, you would see the adoption of cryptocurrencies perhaps the same way you saw them as in the mobile space, where you saw an adoption of the global standard for mobile or GSM that then made it much more ubiquitous in terms of the rules and the participants that want to play by those rules.

7:40So, Bandeep, when do we arrive at that Hegelian synthesis? What does it look like here in the United States as well as abroad? I think outside the United States, it's a bit more predictable because you're seeing industry participants playing to rules that now are being laid out and they are being followed. And it makes it much more credible for investors to come on board because they know what they're dealing with. They know the oversight that are there and they know the protections that are there. I think the U.S. has fallen a bit short while there's attempts to make legislation and get them passed to the Congress and Senate.

8:16They have not been that effective so far. What's happened instead is a bit of legislation by enforcement. And that's not a good thing, especially because the world looks at the U.S. as being the leader for free thinking and innovation and free enterprise. So, you know, we sit outside the U.S. and wonder what happened to change that. ethos and rhythm that was so envied by the world. And I think that's a bit unfortunate, at least in the current state of play. Yeah, it is. You mentioned the historical context of technology and development here in the United States. Obviously, Web1 built right here in the United States, a partnership public and private between the government, industry, and of course, universities in the early days.

8:57Web2 enormously beneficial to the United States. What's your thought on the trajectory that this might take in the United States in terms of Web3. How does that interface with the rest of the world? Obviously, the United States, the world's largest economy, but still a small part of the overall pie. It's interesting to see how this infrastructure gets built out when the United States has been the global reserve currency for so many decades and yet is now, I think it's reasonable to say, not in the pole position, not in the driver's seat, something of a laggard in terms of the development of digital assets.

9:34You know, I was having this conversation with multiple people here. I'm at this Alpha Summit, which is a group of early adopters in crypto, and a lot of them are from the States and some of them are from outside. So you get a multiple study of these. I think that the US has in the past been the great commercializer of innovation. So you think about Tim Berners-Lee inventing the web link and the World Wide Web as we know it, CERN Institute out of Switzerland being very important in terms of propagating it. But the real liftoff took place when companies like Amazon and Yahoo and eBay and later on, of course, Google and the meta companies basically went out there to make companies.

10:13everyday lives better by adopting this new innovation. And I think the way taxation was treated for e-commerce companies through legislation made that free enterprise move very palatable and very acceptable. And therefore, you saw great companies being built on the back of that. On the flip side, you have experiences where my friend who I referred to earlier, the reason why his company was able to list the Neumark and Mass Effect concurrently and why it was successful is because the U.S. had restrictions on the export of encryption technologies. They were treated as ordinance under U.S. law. So guess what?

10:46That created an opportunity for companies outside the U.S. You saw the same thing happen, for example, in stem cell research some years ago. And arguably, over the CDMA and GSM war, it wasn't Tory legislation, but there was a bit of protectionism around the CDMA technology that ultimately led to them sort of coming to an agreement of how they should propagate a common standard. I do hope that the U.S. learns from that e-commerce experience and doesn't go down the path of the stem cell experience or certain other technologies like encryption exports, which really held things back. Because the powerhouse of the U.S.

11:22of the world economy still remains the U.S. So, you know, you look at Ripple, which recently won a ruling. Well, talking to some people earlier at the Paris Blockchain Week in March of this year, you know, some of the people involved, they said 90 percent of their business in Ripple was outside the U.S., which is, again, a bit unfortunate, considering that they were living in the U.S. So I think that sea will change. But is it going to happen this year? Probably not. Next year with the elections looming, perhaps. But we're hopeful it will change. And I think Christmas 2024 looks a lot more promising than Christmas 2023.

11:55Hey, everyone. We're going to take a quick pause and hear a word from our partners. We'll be right back.

12:03So you've been thinking about technology as an investor for some time. Tell us a little bit about what you're doing right now. You've set the table in terms of the context that you see in this space. Lay out where you see the opportunities are and how you're positioning yourself to capitalize on them. Sure. So we're building effectively an asset management firm with global aspirations. And we have two sides of the house. So on the one side, we want to get liquid securities that people can tap into to get exposure to digital assets. On the other hand, it's illiquid securities and tokens. So if I take the first one first, the institutional investor wants to buy products they understand, where they have transparency, they have oversight regulations.

12:45That usually comes in the form of a traded security. And you've seen right now about 162 listed exchange traded funds or exchange traded notes that basically are an equity or debt security collateralized by an underlying holding in crypto. So we want to follow the same path because we know there's a lot of appetite amongst institutional investors to get exposed to the asset class, but they'd rather do it through the familiarity of the traded security. So we're pushing out some exchange traded notes in Europe, which will have collateral of single currency coins that are innovating. We're innovating in that space by bringing DeFi generated yield in addition to staking yield.

13:25So you get one coin in an exchange-traded note. Those coins are deployed in DeFi protocols to propagate the DeFi ecosystem, to propagate support for new DAOs on that ecosystem. And these are also propensities by certain coins to promote the ZK, the zero-knowledge frameworks that they have for the DeFi ecosystem. So we are effectively creating yield that gets passed on to the note holders from a combination of staking and DeFi. therefore aligned for fiat currency participation in the digital asset space and helping the digital asset space ecosystem being supported by this influx of capital that then propagates new dApps and new developments on DeFi protocols.

14:09That's an innovation we're bringing hopefully during the course of this year by listing a few notes that have underlying digital assets with a DeFi yield generation. Separate to that, we're looking at private companies. We already have investments, for example, in a company out of L.A. called Wave Digital Assets, now a top five, I might add, regulated asset manager. They are an RIA in the U.S. and worth a billion and a half of AUM. And we're proud shareholders in there. Again, they've been phenomenally building out this whole digital asset space, as well as IDEO CoLab out of San Francisco, which is a fund from the very well-known design shop called IDEO, which designed the mouse for Steve Jobs and the pump-action toothpaste for Colgate.

14:49Apparently, every surfer knows them. She's been looking at surfers behind me. And to that, we've also co-invested in deals that the fund has invested in. So we're continuing with that thesis. We just have made some investments in Switzerland that are promising. And we will look at the ones that are breakout successes and add more to it. And that'll take the form of a more structured venture fund as opposed to piecemeat investments we've done over the, from the balance sheet the past few years. We're calling that fund Glass Ventures. The last thing we're doing, which is again in the same space of private companies and tokens, is we're creating a metaverse record label, which effectively will allow for private participation and the title ownership of music facts.

15:32If you think of music facts that are, say, owned by record companies, well, there's no reason why you can't tokenize part of the ownership, let's say 20 or 30 percent of the ownership, which is then owned by people at large, particularly fans of specific artists who they you know support they'd love to also be benefiting from the economics so we will effectively find a way of token offerings for title ownership of music class so you could own for example one percent of a song by your favorite artist and therefore have bragging rights because you're a co-owner and a cool song you also have a second retail possibility to sell your token and the reason why that second retail sale as possible, is the tokens have intrinsic value in the form of royalty payments.

16:17You're basically a co-owner, so any time the song is played and there's a royalty generation, you're going to get a proportion of that that you're entitled to. So you get a 20-year income stream that you can basically sell on a four basis as a secondary sale of your token. Of course, we're looking at to do this in a very compliant, regulated way. So wherever these tokens that will ultimately be security tokens can be created, we'll listen there. We've got some phenomenal content that will be very exciting to be put out for very exclusive tracks from very sought-after top-tier artists in the world.

16:49Kundeev, let's take each one of those in turn. I think people will probably understand a little bit about private market equity investments. The title, Ownership via Digital Assets, is extremely interesting. We'll talk about that in just a second, but let's talk first about the structured products component of this, ETPs, ETNs, exchange-traded products, exchange-traded notes. in terms of how you were thinking about structuring DeFi yield into an exchange-traded product, which, to the best of my knowledge at least, has not been done yet anywhere in the world. That's right. Not done so far. But I always say, whenever you're thinking of a startup or you look at an investment startup, assume there's six other people or six other companies out there following the same dream.

17:30So I would say, yes, no one's done it. We want to be the first, but we'll certainly be amongst the first, if not the very first, because there's always people out there looking at things that are the same. So what can you throw an example of what it might look like to structure one of these products? So if you think of the existing ETFs, so ETFs are basically funds and they have a diversity of underlying investments. ETNs can have a single asset underneath them, so you can have one single token. Those tokens are exposed to different protocols, right? So you use them, for example, in staking pools to generate yield from staking.

18:10Now, most of the early ETFs that were listed were basically non-yield generating. You followed the movement of the price. And if the price of your underlying token went up, well, you got an increase in value. So it was an after-appreciation play. Some later plays got yield generated, for example, by a covered call option strategy. So you took a long-only position on where the likely price would be over a 30-day cycle, usually month-end. and you didn't get the full upside of the price movement, you didn't get the full downside, but you got some generation of yield by capitalizing on the volatility and creating that.

18:42You had the next generation of ETFs that then gave yields from staking pools. And that's been good, that's been successful, but the yields are limited. And while that might have worked, let's say in 2021, even 2022, what's happened as you and I are aware from our credit cards and mortgage prices is that interest rates have gone up. So for investors to get a yield that's now above market, when you can get healthy yields on TiVos, for example, you have to have an above market generation of yield. And that's not going to come purely from staking. That's going to come from the deployment of coins on DeFi protocols, where through liquidity provisioning, through yield farming, you effectively can get a higher yield.

19:23and you allocate a certain number of your overall tokens to that DeFi protocol, let's say 25 % or 30%, with an above, like you get 20 % and north yields from there. You blend that with your staking yields, because that's a sub 6%, and you get a blended yield of the high single digits that is very appealing to the market. It's reasonably attractive for institutions because they can see above market yield and they can also see potential appreciation of the token values themselves over a 12 months to three-year period, which is a holding pattern for them. So we're giving them the best of both worlds.

20:03They're coming into the market, which is a bear market, to get lower prices of token, but they're also getting a yield on what the price does because we're getting an enhanced yield from a combination of staking and DeFi deployment. That is the innovation we're bringing because I think you and I will both sort of understand And the DeFi is pretty much here to stay. And few institutions have access to that in a way that's safe and through a regulated instrument like a stock exchange created clear or no. Hey, everyone, we're going to take another quick break and hear a word from our partners. We'll be right back to the Real Vision Crypto Daily Briefing.

20:40Well, you know, DeFi is interesting because I think it's very clear to those of us who watch the space about the tremendous potential and promise there is for decentralized financial services, something that's very clear to see how the use case could unfold, or at least the opportunities that decentralization presents. And yet, with DeFi, we know that there have been a series of notorious security exploits, vulnerabilities, flash loan exposures. Right now, today, this morning, breaking curve finance, drained of$50 million, I think$100 million of tokens potentially at stake, CRV token off some 12 % in trading now.

21:15How do you think about the risks and how you're going to frame that to potential investors in the ETN? Yeah, so we want to go with some more tried and trusted protocols. We're not going to do something that's brand new. I think we're looking at even coins that are more mainstream. So you can actually look at where they deploy, the liquidity there, the backing that they have. and you want to find DeFi protocols that have been around for a while and have hopefully saved off any hacking attempts. For the most part, it's not the currencies themselves, but it's the bridges that can attack. If you think about it, it's not the bank itself, but it's the truck that's used, the armored truck that's used to transport the cashier.

21:59That puts it back. So, you know, there's always risk in doing everything, right? So even as we speak now, the estimate for cryptocurrency hacking and fraud in 2022 was about$3.8 billion. Some of it are going to be sponsored by some state governments like North Korea, which have been fairly well documented. But at the same time, the fraud that took place in the UK alone that year, I live in London, was about a billion and a half US dollars. That's just in the UK. So on a global basis, the amount of fraud that takes place in a regular banking system, on credit card fraud, far exceeds what you see in these piecemeal ones that take place in the digital asset world.

22:43The issue is that because it's newer and it's less known, the fear is greater. And of course, the publicity generates is far greater because it's new. And people want to also find ways of attacking this new, challenging financial system that's being built. But Sandeep isn't the volume that's being built. Isn't the volume that's being transacted in the traditional banking system also much greater? So is it really an apples to apples comparison when you quote the aggregate dollar value of fraud that takes place in the digital assets based in obviously a much, much smaller total transaction volume space?

23:18No, you're actually right. On a proportionate basis, the amount that takes place in the digital world will exceed what takes place in the digital finance world. But this is also a very nascent industry, right? I'm sure if we went back in time and looked at banking sets took place in California in the early days of the gold record, probably not too far off in terms of the proportion that was there in the banking system. The point is, this is something that the industry is collectively looking to tackle. Even in the specific instance that you mentioned, the Wiper code base that was attacked was an earlier generation of that coding.

23:51So the newer iterations of the same software have addressed some of those loopholes, and they have tried to close off some of these open entry points for hackers that apparently have spent weeks and months trying to find vulnerabilities that they can exploit. So we will be extremely careful. We will also not risk everything there. That's why I mentioned a proportionality of 20%, 25%, 30 % in that range of what we've deployed in the DeFi protocols, while the bulk of it will be arguably a safer staking pool network that we are much more accustomed to. But if you go back to staking pools too, you go back, say, five years, they were not that dissimilar to what is taking place today in the DeFi world, right?

24:34If you go back even further, look at Malzoc and some other hacks, these seem to places, DEXs were attacked, like in this case, they would curve, in a manner that then forced the industry to find fortifications against such hacks. So, you know, we want to ride that growth and be part of that thing. At the same time, we certainly don't want to be exposing investors to vulnerabilities that they should not be because we're not being rigorous. Well, Sandeep, this is the nature of frontier technology markets. High risk, high potential reward. And obviously, this shift that technology has continued to drive, I think, for as long as you and I have been in the space watching these revolutions happen one after another.