1 00:00:15,000 --> 00:00:17,000 This episode is brought to you by Gnosis. 2 00:00:17,520 --> 00:00:20,680 Gnosis builds decentralized infrastructure for the Ethereum 3 00:00:20,760 --> 00:00:25,480 ecosystem with a rich history dating back to 2015 and products 4 00:00:25,480 --> 00:00:28,240 like Safe Cow Swap or Gnosis Chain. 5 00:00:28,840 --> 00:00:33,080 Gnosis combines needs driven development with deep technical 6 00:00:33,080 --> 00:00:36,360 expertise. 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Cos One is one of the biggest 18 00:01:19,200 --> 00:01:23,240 node operators globally and help you stake your tokens on 45 plus 19 00:01:23,240 --> 00:01:26,320 networks like Ethereum, Cosmos, the last year. 20 00:01:26,320 --> 00:01:30,960 In dydx, more than 100,000 delegators stick with Chorus 21 00:01:30,960 --> 00:01:34,080 One, including institutions like Bit Go and Ledger. 22 00:01:34,560 --> 00:01:38,600 Sticking with Chorus 1 not only gets you the highest years, but 23 00:01:38,600 --> 00:01:42,520 also the most robust security practices and infrastructure 24 00:01:42,760 --> 00:01:45,040 that are usually exclusive for institutions. 25 00:01:45,800 --> 00:01:48,760 You can stick directly to Chorus One's public note from your 26 00:01:48,760 --> 00:01:51,960 wallet, set up a white table note, or use the recently 27 00:01:51,960 --> 00:01:56,680 launched product Opus to stake up to 8000 ETH in a single 28 00:01:56,680 --> 00:01:59,760 transaction. You can even offer high yield 29 00:01:59,760 --> 00:02:03,160 staking to your own customers using their API. 30 00:02:03,440 --> 00:02:06,280 Your assets always remain in your custody, so you can have 31 00:02:06,280 --> 00:02:10,479 complete Peace of Mind. Start staking today at Corus .1. 32 00:02:11,840 --> 00:02:16,320 Hey guys, welcome to Epicentre. I'm Maher Roy and today I'm 33 00:02:16,320 --> 00:02:21,000 catching up with Shiming Yang, who is one of the Co founders of 34 00:02:21,600 --> 00:02:25,440 Orbit Markets, Orbit Markets. I think he's the market leader 35 00:02:25,440 --> 00:02:31,840 in the field of structured products based on crypto assets. 36 00:02:32,280 --> 00:02:34,600 So I'm really interested to explore what this space 37 00:02:35,040 --> 00:02:37,200 represents and where it could go. 38 00:02:37,760 --> 00:02:41,480 Hi, welcome to the show, Jimmy. Thank you very much for the 39 00:02:41,480 --> 00:02:43,240 invitation. It's great pleasure to be there. 40 00:02:45,160 --> 00:02:48,280 So Jimmy, tell us about your background story and how you 41 00:02:48,680 --> 00:02:51,040 ended up being involved in the crypto space. 42 00:02:52,960 --> 00:02:53,640 Yeah, sure. Yeah. 43 00:02:53,640 --> 00:02:58,680 So actually I think I, I came to crypto relatively late compared 44 00:02:58,680 --> 00:03:02,560 to most people I think so we started actually in 2022, end of 45 00:03:02,560 --> 00:03:06,080 2021, the beginning of 2022, so about about two years ago. 46 00:03:06,080 --> 00:03:08,720 Actually it's been 2 years. I didn't realize it's time time 47 00:03:08,720 --> 00:03:12,280 flies. And before crypto I I was 48 00:03:12,280 --> 00:03:16,600 working in traditional finance, so I worked in at at investment 49 00:03:16,600 --> 00:03:20,120 banks for the all of my career before. 50 00:03:20,120 --> 00:03:24,920 So I was at I started my career in London with BNP Paribas and 51 00:03:24,920 --> 00:03:31,200 then I I worked at Deutsche Bank for over 12 years trading FX, 52 00:03:31,200 --> 00:03:35,000 currencies, derivatives and before leaving Deutsche Bank I 53 00:03:35,000 --> 00:03:38,680 was running the FX derivatives trading business. 54 00:03:39,480 --> 00:03:44,880 For APAC. So what does it mean to leave 55 00:03:44,880 --> 00:03:47,000 the FX derivatives trading business? 56 00:03:47,000 --> 00:03:49,560 What is the FX derivatives trading business at an 57 00:03:49,560 --> 00:03:52,960 investment bank? Yeah, sure. 58 00:03:53,200 --> 00:03:56,200 So at the investment banks, you have what investment bank is 59 00:03:56,200 --> 00:03:59,240 very broad term, right. So everybody here is like 60 00:03:59,240 --> 00:04:00,840 Goldman Sachs, JP Morgan, Deutsche Bank. 61 00:04:01,080 --> 00:04:03,360 These are the investment banks. They have one side of the 62 00:04:03,360 --> 00:04:08,080 business which consists of merger, acquisition, getting the 63 00:04:08,080 --> 00:04:10,200 company listed. You know, that's like the 64 00:04:10,840 --> 00:04:12,440 corporate finance part of things. 65 00:04:12,720 --> 00:04:16,399 There's the another part. So in a sense you can think of 66 00:04:16,399 --> 00:04:20,000 it like primary markets or or if you want, like if you want to 67 00:04:20,000 --> 00:04:22,040 actually if you're more familiar with crypto, then it's like 68 00:04:22,280 --> 00:04:26,040 getting a token listed on exchange or like a financing, 69 00:04:26,040 --> 00:04:29,200 etcetera, a project. There is another side of the 70 00:04:29,200 --> 00:04:32,240 investment banking which is the what we call like secondary 71 00:04:32,240 --> 00:04:34,080 market. So something's already listed. 72 00:04:34,080 --> 00:04:38,000 It's already trading. So now you have the whole, the 73 00:04:38,000 --> 00:04:41,120 whole, the sales and trading business that actually help 74 00:04:41,120 --> 00:04:46,600 clients put on the trade or whether it's for hedging or 75 00:04:46,600 --> 00:04:49,600 whether it's for speculation or whether it's for investment. 76 00:04:49,600 --> 00:04:54,880 So we provide those products to the clients and the clients of 77 00:04:54,880 --> 00:04:58,840 investment banks can be funds, hedge funds, trading desk, high 78 00:04:58,840 --> 00:05:02,320 net worth individuals, companies, corporates, all sort 79 00:05:02,320 --> 00:05:06,480 of different clients And then we provide these investment 80 00:05:06,480 --> 00:05:09,280 solutions or products to them for them to trade. 81 00:05:10,080 --> 00:05:14,080 And then So what I do as a trader as run it as the as 82 00:05:14,080 --> 00:05:16,680 someone running the desk is that we have obviously a team of 83 00:05:16,680 --> 00:05:21,600 traders, we have quants, we have also meet office, back office 84 00:05:21,600 --> 00:05:25,760 doing the operations. So we have actually everyday we 85 00:05:25,840 --> 00:05:28,920 a client wants to trade a certain product, a certain or 86 00:05:28,920 --> 00:05:32,480 certain solutions. So we have to actually have make 87 00:05:32,480 --> 00:05:34,520 the price. So we have to actually calculate 88 00:05:34,520 --> 00:05:38,560 the fair price of this product, show it to the client. 89 00:05:38,560 --> 00:05:42,160 If client wants to trade, then the trade is done and then we 90 00:05:42,160 --> 00:05:45,480 need to start managing the risk, managing the risk of those 91 00:05:45,480 --> 00:05:49,360 trades and then we obviously want to make make money as well 92 00:05:49,360 --> 00:05:54,800 for the bank. So that's what we used to do on 93 00:05:54,800 --> 00:05:58,160 the on the at the sell side we call it sell side at at 94 00:05:58,160 --> 00:06:01,280 investment Max. So now what we do in crypto is 95 00:06:01,280 --> 00:06:05,440 we try to basically replicate this same sales and trading 96 00:06:05,440 --> 00:06:09,400 business model from traditional finance to crypto and that's 97 00:06:09,400 --> 00:06:14,440 what we do actually. So at OB markets we offer mostly 98 00:06:14,440 --> 00:06:16,600 we are focusing on options and derivatives. 99 00:06:16,600 --> 00:06:20,120 So we offer derivatives products and solutions to our clients. 100 00:06:20,960 --> 00:06:24,560 Some of them for example use our structure products to hedge 101 00:06:24,640 --> 00:06:28,880 their crypto holdings law for example a minor that they keep 102 00:06:28,880 --> 00:06:33,000 producing BTC right every day and then they actually want to 103 00:06:33,000 --> 00:06:36,520 hedge the the risk of price falling or fluctuations. 104 00:06:36,720 --> 00:06:41,000 So we customize and and make bespoke structures for them. 105 00:06:41,400 --> 00:06:45,600 Well, we also have some of the funds who wants to actually buy 106 00:06:45,600 --> 00:06:48,640 tokens, accumulate certain tokens and then we have like 107 00:06:48,640 --> 00:06:52,280 structure solutions to help them buy the tokens at the price that 108 00:06:52,280 --> 00:06:58,000 is better than the spot price. So can I think of it like as a 109 00:06:58,880 --> 00:07:05,000 as a as a crypto investor I'm used to the idea of going to an 110 00:07:05,000 --> 00:07:09,680 exchange and like buying this coin or that coin and usually 111 00:07:09,680 --> 00:07:14,520 I'm I'm I'm interacting with the exchange or the matching algo of 112 00:07:14,520 --> 00:07:18,960 the exchange quite directly. But sometimes I might go to kind 113 00:07:18,960 --> 00:07:22,960 of like an OTC desk and to your OTC desk there's a human on the 114 00:07:22,960 --> 00:07:26,920 other side and and I essentially say hey that's what I have 115 00:07:26,920 --> 00:07:30,280 that's what I want. Can you can you make the make 116 00:07:30,280 --> 00:07:34,040 the trade for me and like this this trader on the other side 117 00:07:35,080 --> 00:07:39,440 will essentially figure out how to price it and will offer offer 118 00:07:39,440 --> 00:07:44,320 me a a price for then OTC price for for what I want. 119 00:07:45,240 --> 00:07:50,440 But then you could imagine that that OTC desk could get even 120 00:07:50,440 --> 00:07:53,800 more sophisticated where it no longer becomes about just 121 00:07:54,200 --> 00:07:59,920 selling or and buying something. But it's like hey I want to I I 122 00:07:59,920 --> 00:08:03,720 have this asset and I want to combine it with some kind of 123 00:08:03,720 --> 00:08:09,680 derivative and the and the combined thing is, is, is the 124 00:08:09,680 --> 00:08:14,920 trade I want and then the OTC desk is able to do this complex 125 00:08:14,920 --> 00:08:18,440 combinations. And then as soon as you get into 126 00:08:18,440 --> 00:08:22,160 the field of complex combinations, it will happen 127 00:08:22,160 --> 00:08:26,080 that OK, I will have to put some asset as collateral with that 128 00:08:26,080 --> 00:08:30,280 OTC desk And so collateral management will also enter which 129 00:08:30,280 --> 00:08:32,520 may not be part of just like a simple trade. 130 00:08:33,200 --> 00:08:37,240 So as you imagine like this OTC desks becoming more and more 131 00:08:37,240 --> 00:08:41,600 complex, more and more capable, they would start to resemble 132 00:08:41,600 --> 00:08:46,160 what kind of an investment bank does on the trading side for its 133 00:08:46,160 --> 00:08:48,680 clients today. Is is that correct way of seeing 134 00:08:48,680 --> 00:08:51,320 seeing it? Yeah, absolutely. 135 00:08:51,320 --> 00:08:54,760 What you just described is is is true for crypto, but is also 136 00:08:54,760 --> 00:08:57,160 very true for for traditional finance. 137 00:08:57,520 --> 00:09:01,880 So in traditional finance you also have this exchange, market 138 00:09:02,040 --> 00:09:06,000 venues and also the OTC side. The exchange is also very very 139 00:09:06,000 --> 00:09:07,920 important part of traditional finance. 140 00:09:07,920 --> 00:09:10,040 You have most of the stocks, for example trading all the 141 00:09:10,040 --> 00:09:12,880 exchanges. But it has also limitations, 142 00:09:12,880 --> 00:09:15,160 right? So the exchange can only list 143 00:09:15,160 --> 00:09:17,960 the standardized, the products you have like standardized the 144 00:09:17,960 --> 00:09:22,120 payoff, standardized maturities, strikes, etcetera. 145 00:09:22,760 --> 00:09:25,800 But then what if I want something more customized or 146 00:09:25,800 --> 00:09:29,280 what if I want something more as you said, more complex, right. 147 00:09:29,280 --> 00:09:32,680 So in that case, you actually even in traditional finance, you 148 00:09:32,680 --> 00:09:35,800 have to go to OTC desk. OTC desk in traditional finance 149 00:09:35,840 --> 00:09:39,600 are typically big banks, big in investment banks. 150 00:09:39,880 --> 00:09:42,240 So you go to them for for various reasons. 151 00:09:42,240 --> 00:09:44,600 One, you want to execute the large amount of trade. 152 00:09:44,920 --> 00:09:47,440 So if you do this on exchange, you will actually move the 153 00:09:47,440 --> 00:09:49,120 market probably against you, right. 154 00:09:49,120 --> 00:09:52,040 So you want to go to investment bank who can actually manages 155 00:09:52,040 --> 00:09:56,160 better for you, the execution for you or you go to go to an 156 00:09:56,160 --> 00:09:59,440 investment bank because you actually want something more 157 00:09:59,440 --> 00:10:03,600 bespoke like not available on the exchange, so something 158 00:10:03,600 --> 00:10:07,120 exotic or more more complex. So you go to them and they are 159 00:10:07,120 --> 00:10:10,440 able to offer this to you and they will manage the risk 160 00:10:11,200 --> 00:10:13,520 themselves. So they will rely on their 161 00:10:13,520 --> 00:10:17,440 quantitative models, they will rely on their, they will manage 162 00:10:17,480 --> 00:10:21,000 the, the, the product together with the other products so to 163 00:10:21,000 --> 00:10:23,440 achieve efficiency. So at the moment in crypto is 164 00:10:23,440 --> 00:10:25,920 the same thing. Crypto market started with the 165 00:10:25,920 --> 00:10:29,720 various basic simple products which is spot which exists in 166 00:10:29,720 --> 00:10:33,080 every financial market and if you look at the evolution of any 167 00:10:33,080 --> 00:10:37,120 financial market gradually moves up in terms of sophistication 168 00:10:37,120 --> 00:10:40,560 and complexity. Sophisticated products, complex 169 00:10:40,560 --> 00:10:43,080 product doesn't mean they are necessarily better product. 170 00:10:43,080 --> 00:10:46,720 I'm not saying that but they are probably they they they are 171 00:10:46,720 --> 00:10:52,080 there to fit your particular view, your particular demand, 172 00:10:52,360 --> 00:10:56,080 your particular budget etcetera. It just gives you more options. 173 00:10:56,080 --> 00:10:59,000 If you want like exchange, you can think exchange more like a 174 00:10:59,320 --> 00:11:01,960 fast food restaurants go to McDonald's, you can just choose 175 00:11:01,960 --> 00:11:04,600 whatever you want or standardize you just buy food you want. 176 00:11:05,000 --> 00:11:08,360 And then if you want to OTC that is more like a fine dining 177 00:11:08,360 --> 00:11:11,520 restaurant, you go there, you want like personalized dishes, 178 00:11:11,520 --> 00:11:14,560 you want eat this and that and they will make it like 179 00:11:15,280 --> 00:11:19,440 specifically for you, like like they are dedicated service 180 00:11:20,000 --> 00:11:23,040 tailor, tailor made products for you, right. 181 00:11:23,240 --> 00:11:27,280 So in that case you can trade things that exactly as you want. 182 00:11:27,280 --> 00:11:32,800 For example, I think Bitcoin is going to go up to 45,000 to the 183 00:11:32,800 --> 00:11:37,560 next few weeks, but it will not exceed 50,000, right. 184 00:11:37,560 --> 00:11:42,080 So then if you have this particular view, it's almost 185 00:11:42,080 --> 00:11:46,240 impossible to to do this using is it impossible to do this 186 00:11:46,240 --> 00:11:49,640 using spot or perps or futures? And even with vanilla options 187 00:11:49,640 --> 00:11:52,720 you can't achieve this if you have such a particular view. 188 00:11:52,720 --> 00:11:56,160 But you can do this using exotic options, right? 189 00:11:56,160 --> 00:11:58,760 So that we we call like for example Barry options. 190 00:11:59,160 --> 00:12:03,120 So that trade will you start make money if spot goes up above 191 00:12:03,120 --> 00:12:07,680 45,000 but it will knockout it will just disappear if it's spot 192 00:12:07,680 --> 00:12:10,720 goes above 50,000. And then you will be you will 193 00:12:10,720 --> 00:12:14,760 buy this option really cheaply because it has this additional 194 00:12:14,760 --> 00:12:17,640 condition on knockout. So this is that's something that 195 00:12:17,640 --> 00:12:20,400 you can buy from the exchange. So you have to go to OTC desk 196 00:12:21,080 --> 00:12:23,320 which can provide this product to you. 197 00:12:25,000 --> 00:12:27,240 Yeah, that's that's really interesting. 198 00:12:27,240 --> 00:12:31,880 So, yeah, you can basically like create new kinds of options that 199 00:12:32,400 --> 00:12:35,560 are not available on any public options market. 200 00:12:36,120 --> 00:12:38,840 And then you can also like combine these options with like 201 00:12:38,840 --> 00:12:41,800 trades that make make even more sophisticated products. 202 00:12:42,280 --> 00:12:46,240 Could you, could you give us like some historical examples of 203 00:12:46,880 --> 00:12:50,080 this industry in in the investment banking world, like 204 00:12:50,080 --> 00:12:54,600 examples where I mean there might be a story of somebody 205 00:12:54,600 --> 00:12:58,840 that did something like this and either made money or lost money. 206 00:12:58,840 --> 00:13:02,760 And the story is well known in the industry and will give us an 207 00:13:02,760 --> 00:13:06,160 idea of how it works. You have some some stories like 208 00:13:06,160 --> 00:13:09,960 that. Yeah, yeah, plenty of those kind 209 00:13:09,960 --> 00:13:13,120 of stories and obviously a lot of people, some people made 210 00:13:13,120 --> 00:13:16,240 money, some people lost money. That's just like any financial 211 00:13:16,240 --> 00:13:21,760 market options itself. I think it's I think he, I I I 212 00:13:21,760 --> 00:13:24,160 can't remember when he was invented by was invented 213 00:13:24,160 --> 00:13:28,480 probably late like 70s or in the 80s in the in the US stock 214 00:13:28,480 --> 00:13:30,840 market. Then there's this famous like 215 00:13:31,040 --> 00:13:35,880 black shows formula as got invented and then suddenly this 216 00:13:35,880 --> 00:13:38,760 becomes a very, very popular product because all the banks 217 00:13:38,760 --> 00:13:41,480 suddenly have the tools, have the quantity models, the price 218 00:13:41,480 --> 00:13:43,880 of risk managed and suddenly becomes really popular. 219 00:13:43,880 --> 00:13:47,800 And now if I, I, I if I remember correctly last year there was a 220 00:13:47,800 --> 00:13:51,560 big boom in the US stock market and options volume actually 221 00:13:52,120 --> 00:13:56,360 surpassed the volume of spot stocks, right. 222 00:13:56,360 --> 00:14:00,600 A lot of investors buying this like a zero day to mature, zero 223 00:14:00,600 --> 00:14:02,800 day to expiry. So basically same day expiry 224 00:14:02,800 --> 00:14:07,560 options to to basically take like a betting now now like a 225 00:14:07,760 --> 00:14:10,840 very high leverage short term betting right. 226 00:14:10,840 --> 00:14:16,520 So options market grow from zero to now the probably the biggest 227 00:14:18,000 --> 00:14:21,720 financial products at least in traditional markets over the 228 00:14:21,720 --> 00:14:26,520 last I think 40 years. And then over the last 20 years 229 00:14:26,520 --> 00:14:31,040 there's all this very all these like rapid development around 230 00:14:31,360 --> 00:14:35,400 even more sophisticated structure products initially all 231 00:14:35,440 --> 00:14:39,680 led by French, French engineering engineers with a 232 00:14:39,840 --> 00:14:42,160 very great like great math skills. 233 00:14:42,160 --> 00:14:44,800 And then they invented all the new models to price all this 234 00:14:45,120 --> 00:14:46,960 really stuff, scheduled stuff, right. 235 00:14:46,960 --> 00:14:51,840 So people making money from these products, plenty of 236 00:14:51,840 --> 00:14:54,120 examples. You have a lot of like very 237 00:14:54,120 --> 00:14:57,160 sophisticated hedge funds for example they they trade venue 238 00:14:57,160 --> 00:15:00,720 options but they also want to trade very specific payoff. 239 00:15:01,040 --> 00:15:04,480 The example I said earlier for example, you won't have this 240 00:15:04,600 --> 00:15:10,000 like for example you want you, you think that the on the line 241 00:15:10,000 --> 00:15:12,520 will go up but you will not actually exceed the certain 242 00:15:12,520 --> 00:15:14,840 level. So you actually add a knockout 243 00:15:14,840 --> 00:15:17,760 barrier. So then the the product becomes 244 00:15:17,760 --> 00:15:21,800 really cheap, but maybe it's only like 1/3 or quarter of the 245 00:15:21,800 --> 00:15:24,040 price if you buy it compared to a vanilla option. 246 00:15:24,680 --> 00:15:27,200 But then you achieve the same return in the end, right? 247 00:15:27,480 --> 00:15:31,400 So you your return your your return will be 4 * 3 times or 248 00:15:31,400 --> 00:15:34,720 four times more if you do exotic options. 249 00:15:35,600 --> 00:15:39,440 There are also plenty of structure product that went 250 00:15:39,440 --> 00:15:41,440 well. There are many that didn't go 251 00:15:41,440 --> 00:15:42,840 well, but many went well as well. 252 00:15:42,840 --> 00:15:46,120 For example in Switzerland there's a very popular structure 253 00:15:46,120 --> 00:15:50,080 products called MBRC, so multi barrier reverse convertible. 254 00:15:51,160 --> 00:15:55,880 They are every day they are like 4000 different MBRC listed on 255 00:15:55,880 --> 00:15:58,720 Swiss exchange for example. There's very popular product and 256 00:15:58,720 --> 00:16:02,920 linked to different underlines like stocks, indices or 257 00:16:02,920 --> 00:16:07,360 commodities. Surely over over over the years 258 00:16:08,520 --> 00:16:11,320 there are investors who made money but also there are times 259 00:16:11,320 --> 00:16:14,600 where you know the underlines went down and then investors 260 00:16:14,600 --> 00:16:18,720 lost money. I think structured products they 261 00:16:18,920 --> 00:16:22,520 they they don't mean that they will help you make money more 262 00:16:22,520 --> 00:16:26,320 often than you know than than simple products but that's 263 00:16:26,320 --> 00:16:28,800 definitely not true. But also at the same time I 264 00:16:28,800 --> 00:16:32,800 don't think they are necessarily more dangerous either because in 265 00:16:32,800 --> 00:16:35,560 the end of the day your your risk is similar. 266 00:16:35,560 --> 00:16:38,760 Your risk is you are long or short on the line right. 267 00:16:39,000 --> 00:16:44,480 It's just that the payoff got like changed, adjusted, tweaked. 268 00:16:45,880 --> 00:16:49,760 So yeah, it's really depends on the, on the, on your use case, 269 00:16:49,760 --> 00:16:51,280 right. Some of the companies for 270 00:16:51,280 --> 00:16:54,640 example, they use some of the hedging solutions and then 271 00:16:54,760 --> 00:16:59,120 achieve the really good results. So they just systematically 272 00:16:59,120 --> 00:17:03,320 hedge their financial exposures or their receivables, for 273 00:17:03,320 --> 00:17:06,000 example, and then they definitely achieved better 274 00:17:06,000 --> 00:17:08,599 financial results than if they did not hedge at all. 275 00:17:09,359 --> 00:17:13,319 So for me like the flagship story of the this structured 276 00:17:13,520 --> 00:17:17,520 products market as an entrepreneur was it's like this 277 00:17:17,760 --> 00:17:21,839 story I've heard of Mark Cuban. So he's he's like this 278 00:17:21,839 --> 00:17:26,000 entrepreneur that appears these days on Shark Tank or used to 279 00:17:26,000 --> 00:17:30,640 appear on Shark Tank and then there was this TVC, it's called 280 00:17:30,640 --> 00:17:34,400 Silicon Valley. And then there was a billionaire 281 00:17:34,400 --> 00:17:39,360 in that billionaire character in that the TVC is called Ruse 282 00:17:39,360 --> 00:17:41,560 Hanuman. And that character is kind of 283 00:17:41,560 --> 00:17:45,320 modeled on Mark Cuban. But the Mark Cuban story was 284 00:17:45,320 --> 00:17:51,600 like he he made a sort of like $1,000,000 or like couple of 285 00:17:51,600 --> 00:17:55,200 $1,000,000 in one startup and sold that startup in 1989 and 286 00:17:55,200 --> 00:17:58,960 retired like at the age of, I don't know, 27 or 28, he was 287 00:17:58,960 --> 00:18:06,400 like, I'm I'm going to retire and then 1991 the he, he he 288 00:18:06,400 --> 00:18:11,240 somehow comes across the http://web and it's too early, 289 00:18:11,920 --> 00:18:16,360 but he's intrigued by it. And then this guy starts to 290 00:18:16,640 --> 00:18:20,400 eventually build a business which is called broadcast.com. 291 00:18:20,920 --> 00:18:24,880 So in broadcast.com what he does is OK, it's a simple idea, it's 292 00:18:24,880 --> 00:18:28,280 maybe even a dumb idea. It's like radio on the Internet. 293 00:18:28,280 --> 00:18:31,480 Like could you go to a website and just listen to the radio 294 00:18:31,600 --> 00:18:35,000 website? That's what he starts and it 295 00:18:35,000 --> 00:18:42,040 starts to get some usage as the 90s past broadcast.com booms and 296 00:18:42,040 --> 00:18:47,160 then it gets IPOs and lists on the on the public market, I 297 00:18:47,160 --> 00:18:51,160 think New York Stock Exchange and it lists and a few days 298 00:18:51,160 --> 00:18:56,040 later the.com bubble crosses a value of a billion dollars like 299 00:18:56,560 --> 00:18:58,960 and it ultimately goes like 3 or 4 billion mark. 300 00:18:58,960 --> 00:19:01,280 Cuban personally becomes a billionaire in the public 301 00:19:01,280 --> 00:19:05,840 markets. Then then Yahoo appears and 302 00:19:05,840 --> 00:19:11,080 Yahoo is like we want to buy broadcast.com and so Mark Cuban 303 00:19:11,240 --> 00:19:13,840 hashes out this deal with deal with Yahoo. 304 00:19:13,840 --> 00:19:18,800 Now in this deal The thing is like he has to go and work for 305 00:19:18,800 --> 00:19:24,320 Yahoo for a while after the sale and he gets Yahoo stock. 306 00:19:24,400 --> 00:19:27,800 In exchange for broadcast.com stock. 307 00:19:27,800 --> 00:19:29,600 He does. He gets some cash, but the 308 00:19:29,600 --> 00:19:33,720 majority portion is stock and then the stock is illiquid for 309 00:19:34,160 --> 00:19:38,400 three years. And this is now I think 1999 or 310 00:19:38,920 --> 00:19:43,040 late 1998. And he's sitting on a billion 311 00:19:43,040 --> 00:19:47,880 dollars worth of Yahoo stock. That's illiquid, That's booming 312 00:19:47,880 --> 00:19:53,480 a ton in the.com bubble. And Mark Cuban's like this is 313 00:19:53,480 --> 00:19:58,640 going to crash, but I don't have the Yahoo shares and so I think 314 00:19:58,640 --> 00:20:01,160 he goes to one of the investment banks and. 315 00:20:01,760 --> 00:20:06,440 He actually the investment bankers create a structured 316 00:20:06,440 --> 00:20:11,280 product specifically for him which behaves like a a caller 317 00:20:11,440 --> 00:20:18,840 meaning if the if the Yahoo stock falls down in price below 318 00:20:18,840 --> 00:20:22,720 a certain price he will make in three years or whatever that 319 00:20:22,720 --> 00:20:27,320 minimum level of of of price. So if he if he entered into 320 00:20:27,320 --> 00:20:30,880 trade with a billion dollars, the worst position he can get is 321 00:20:30,880 --> 00:20:35,520 maybe you know $950 million. But on the other side, because 322 00:20:35,520 --> 00:20:39,560 this kind of insurance is being provided on the other side, if 323 00:20:39,560 --> 00:20:42,920 the Yahoo's stock night double S from a billion to like 2 324 00:20:42,920 --> 00:20:46,240 billion, he might only make 50 million of those. 325 00:20:46,240 --> 00:20:52,040 So it's like, so his kind of payoff is bounded to a range of 326 00:20:52,040 --> 00:21:00,960 950 million to 1.05 billion and he does that kind of that kind 327 00:21:00,960 --> 00:21:02,920 of trade. And and the interesting thing is 328 00:21:02,920 --> 00:21:06,320 that the underlying collateral that he has is completely 329 00:21:06,320 --> 00:21:10,720 illiquid like is, is, is like it's like this Yahoo stock and 330 00:21:10,720 --> 00:21:14,640 then the outcome bubble does collapse and mark you what ends 331 00:21:14,640 --> 00:21:19,840 up looking like a genius. So, so that's that's that's like 332 00:21:19,840 --> 00:21:22,840 the first point in my life when I read that story and was like 333 00:21:22,840 --> 00:21:28,320 oh wow, like you could if you have like some asset in which 334 00:21:28,320 --> 00:21:30,960 there's constraints or you have an interesting view about the 335 00:21:30,960 --> 00:21:35,880 future like X will happen but not Y, then you could convert 336 00:21:35,880 --> 00:21:39,640 that view into a a trade in the in the markets essentially 337 00:21:39,640 --> 00:21:41,680 that's what like the structure products allow. 338 00:21:43,240 --> 00:21:45,960 Yeah, So what you mentioned like a colour is a very popular 339 00:21:45,960 --> 00:21:48,920 structure, obviously using vanilla, simple vanilla options. 340 00:21:48,920 --> 00:21:50,800 It's a very simple combination of vanilla options. 341 00:21:50,800 --> 00:21:54,240 You buy, you sell a coal to cap you upside at the same time you 342 00:21:54,240 --> 00:21:58,560 buy a put to protect your downside, right, which is very, 343 00:21:58,560 --> 00:22:02,840 very popular for this type of hedging purposes in your 344 00:22:02,840 --> 00:22:05,560 particular case, obviously I I'm not very familiar with this 345 00:22:05,760 --> 00:22:09,960 story, I don't know depending on the exact agreement he had with 346 00:22:09,960 --> 00:22:13,600 Yahoo like she may or may not be actually allowed to do this. 347 00:22:13,960 --> 00:22:19,120 While you know like in most of the these days like investment 348 00:22:19,120 --> 00:22:24,000 agreement or like merger and acquisitions when you when you 349 00:22:24,040 --> 00:22:27,640 you get the shares or you get some equities in a different 350 00:22:27,640 --> 00:22:30,640 company and then there's usually a vesting schedule right. 351 00:22:31,040 --> 00:22:35,680 And then before your shares actually got vested you you 352 00:22:35,680 --> 00:22:38,240 can't you're not allowed to hedge it as you are not allowed 353 00:22:38,240 --> 00:22:40,800 to shorten sell it in any form so. 354 00:22:41,200 --> 00:22:44,280 So I'm not very sure about the exact agreement he had with 355 00:22:44,280 --> 00:22:47,240 Yahoo. But then these days these kind 356 00:22:47,240 --> 00:22:50,960 of things especially in traditional finance, I think is 357 00:22:52,360 --> 00:22:57,240 people like check it very closely, yeah. 358 00:22:57,600 --> 00:22:59,080 Yeah, yeah. So I'm just checking the 359 00:22:59,080 --> 00:23:00,720 Internet like this story is genuine. 360 00:23:00,720 --> 00:23:03,840 He hedged 1.4 billion in Yahoo stock. 361 00:23:04,640 --> 00:23:07,400 Yeah, maybe she's allowed. He was allowed to do that. 362 00:23:07,400 --> 00:23:12,080 But yeah, I think usually when your your your shares are 363 00:23:12,080 --> 00:23:14,960 locked, when your all your tokens are locked, they're 364 00:23:14,960 --> 00:23:16,640 locked for a reason, right today. 365 00:23:16,920 --> 00:23:19,440 And then you should start selling it through other ways, 366 00:23:19,640 --> 00:23:25,160 other means that basically defeats, defeats the purpose of 367 00:23:25,160 --> 00:23:27,320 locking it or although vesting schedule. 368 00:23:27,320 --> 00:23:30,400 So I don't know, yeah, but good for him, good for him. 369 00:23:30,400 --> 00:23:35,240 He like he he managed to manage to hedge his positions very 370 00:23:35,240 --> 00:23:37,440 successfully and at the right timing. 371 00:23:38,280 --> 00:23:39,880 Right. And I mean, that's what the 372 00:23:39,880 --> 00:23:40,960 Internet says. Now. 373 00:23:41,040 --> 00:23:44,520 I don't know the details, but you can find the story on the on 374 00:23:44,520 --> 00:23:46,400 the Internet. Like the listeners can find it 375 00:23:46,400 --> 00:23:48,320 if they want to see. Yeah, Yeah, Yeah. 376 00:23:48,800 --> 00:23:54,000 So, I mean, so on a similar way in like maybe, maybe like let's 377 00:23:54,000 --> 00:23:57,840 kind of think of a recent crypto market event, right. 378 00:23:57,840 --> 00:24:00,440 Like, I mean the recent crypto market event is kind of like, 379 00:24:00,440 --> 00:24:02,640 OK, the ETF will get approved or not. 380 00:24:02,640 --> 00:24:04,560 This Bitcoin ETF will get approved or not. 381 00:24:04,560 --> 00:24:07,920 And now there's like increased speculation about whether 382 00:24:07,920 --> 00:24:10,680 there's been Ethereum ETF or not. 383 00:24:11,240 --> 00:24:15,600 So like, yeah, could you give us some examples of structured 384 00:24:15,600 --> 00:24:20,200 products around the how, around the Bitcoin ETF and like the 385 00:24:20,200 --> 00:24:23,880 kinds of kinds of exposures people could have constructed 386 00:24:23,880 --> 00:24:27,040 before or before the event with with Orbit? 387 00:24:28,880 --> 00:24:31,360 Yeah. So now there are two big things. 388 00:24:31,440 --> 00:24:33,560 Well, that there were three, now there are two. 389 00:24:33,560 --> 00:24:37,280 So we have the BTCETF that is already done. 390 00:24:37,640 --> 00:24:39,840 Then we have the hub incoming as well. 391 00:24:39,920 --> 00:24:44,720 Then we have the BTHETF news. So these are the that that could 392 00:24:44,720 --> 00:24:49,680 be the catalyst that triggers a next, the next leg up. 393 00:24:49,680 --> 00:24:54,480 So we've seen actually a lot of interest from our clients to to 394 00:24:54,480 --> 00:25:00,200 buy tokens in actually more towards the outcoins. 395 00:25:00,520 --> 00:25:04,960 So the the general thing that we have observed is like a lot of 396 00:25:04,960 --> 00:25:08,680 buy interest in large layer one tokens, right. 397 00:25:08,920 --> 00:25:12,880 Solana obviously is a is a star and then we also have seen 398 00:25:12,880 --> 00:25:19,360 people buying Cardano RX. The other part, the other area 399 00:25:19,360 --> 00:25:25,920 where a lot of buying trusts is, is the some of the L2 tokens and 400 00:25:26,200 --> 00:25:30,400 that's like optimism and Arbitron and then we also see 401 00:25:30,400 --> 00:25:35,240 some of the interest in newer L1 tokens as well. 402 00:25:35,440 --> 00:25:40,640 So how to actually, how to position yourself actually into 403 00:25:40,640 --> 00:25:45,160 these events? I think one very classical 404 00:25:45,720 --> 00:25:48,840 structure of products is called accumulator. 405 00:25:48,920 --> 00:25:52,400 So as the name says, accumulator is actually helping you to 406 00:25:52,400 --> 00:25:57,480 accumulate a certain underlying. So this product is not invented 407 00:25:57,480 --> 00:25:59,040 for crypto, it's not specific crypto. 408 00:25:59,040 --> 00:26:01,840 It has existed in traditional finance for many, many years. 409 00:26:02,120 --> 00:26:06,760 People use it to buy shares like Tesla shares, Amazon shares and 410 00:26:06,760 --> 00:26:10,560 now we have actually basically replicated in crypto and then 411 00:26:10,560 --> 00:26:14,880 you can use the same structure to buy tokens and it gives you a 412 00:26:14,880 --> 00:26:17,360 discount versus the current spot. 413 00:26:17,360 --> 00:26:19,520 For example, Solana spot is at 100. 414 00:26:19,840 --> 00:26:24,040 If you use accumulator structure then you can buy Solana tokens 415 00:26:24,040 --> 00:26:26,880 at for example 75. So it's a big discount. 416 00:26:27,840 --> 00:26:31,240 How do we achieve the discount is always there's no free lunch, 417 00:26:31,240 --> 00:26:33,200 right? We're not like just giving money 418 00:26:33,200 --> 00:26:37,600 free money away to people. So it's achieved through this 419 00:26:37,600 --> 00:26:40,160 engineering of the structure products. 420 00:26:40,160 --> 00:26:41,800 It's achieved through two things. 421 00:26:41,800 --> 00:26:45,720 One is this, there's a knockout, the knockout feature. 422 00:26:45,920 --> 00:26:50,800 So if Solana price goes up above a certain barrier knockout 423 00:26:50,800 --> 00:26:55,040 barrier, then the trade will will be terminated, meaning that 424 00:26:55,040 --> 00:26:59,960 your game will be limited, right, Because you you if the 425 00:26:59,960 --> 00:27:01,920 spot goes up a lot then you stop buying. 426 00:27:02,720 --> 00:27:05,920 So your game is actually limited, but but you're on the 427 00:27:05,920 --> 00:27:10,720 other side, if the spot goes down below 75, then you still 428 00:27:10,720 --> 00:27:15,280 have to buy, and you have to actually buy more Solana at 75. 429 00:27:15,880 --> 00:27:20,080 So this is obviously creating an asymmetrical payoff, right? 430 00:27:20,200 --> 00:27:23,960 Is obviously asymmetrical. Your your gain is limited, your 431 00:27:23,960 --> 00:27:27,360 loss is actually doubled or unlimited in a way. 432 00:27:28,480 --> 00:27:32,480 And because of this you get to buy the token at the big 433 00:27:32,480 --> 00:27:36,720 discount, OK. So this obviously has risk where 434 00:27:36,720 --> 00:27:40,040 it doesn't come without risk. So the risk is that if the price 435 00:27:40,040 --> 00:27:43,960 goes down a lot, you still have to buy the same price, right. 436 00:27:44,320 --> 00:27:48,440 But then this is this strategy could be very good for those who 437 00:27:49,800 --> 00:27:53,560 really want to buy Solana at. If they are, you know, if they 438 00:27:53,680 --> 00:27:59,040 are comfortable and they are OK to buy the AT at the 75, then 439 00:27:59,240 --> 00:28:02,240 it's fine, they can because they will just be buying 75. 440 00:28:02,520 --> 00:28:06,120 Especially for those who are, you know ready to buy Solana at 441 00:28:06,120 --> 00:28:10,120 the car is about 100. So why not, why not, you know, 442 00:28:10,120 --> 00:28:12,480 give yourself a chance to buy a 75, right. 443 00:28:13,560 --> 00:28:16,600 So it really depends on use case, right. 444 00:28:16,600 --> 00:28:19,320 So if you are purely speculative, like I'm just like 445 00:28:19,320 --> 00:28:23,520 going to speculate, then maybe this product is not necessary 446 00:28:23,520 --> 00:28:26,120 for you. But if you have this 447 00:28:26,560 --> 00:28:29,000 accumulation mandate, you just have to buy. 448 00:28:29,040 --> 00:28:33,000 For example, you have a law, you you run a law only fund and this 449 00:28:33,000 --> 00:28:35,440 is actually a very good strategy for your fund. 450 00:28:36,640 --> 00:28:38,840 Right. So if like somebody has the view 451 00:28:38,840 --> 00:28:41,760 that Solana will be amazing, right? 452 00:28:41,760 --> 00:28:44,080 Like a crypto bull market is coming, it's going to go from 453 00:28:44,080 --> 00:28:48,160 100 to 500 and like this like there's 80% chance that will 454 00:28:48,160 --> 00:28:53,560 happen and then there's like 20% chance that it's going to stay 455 00:28:53,560 --> 00:28:57,560 range bound like between like I don't know, 60 and 120, that's 456 00:28:57,560 --> 00:29:01,320 their view, right? Like so if if somebody is coming 457 00:29:01,320 --> 00:29:07,080 with that mindset, then this person could say, well I don't 458 00:29:07,080 --> 00:29:12,720 believe Solana can go lower than 60 and if I need to buy more at 459 00:29:12,880 --> 00:29:17,480 75, I'm willing to buy a lot more at 75. 460 00:29:18,280 --> 00:29:22,800 But in exchange for accepting the obligation that if it falls 461 00:29:22,800 --> 00:29:27,200 below 75, they will need to buy a lot more, they can instead of 462 00:29:27,200 --> 00:29:31,480 buying at 100, they might be able to buy at 80 or or 85 or 463 00:29:31,480 --> 00:29:33,560 however the contract is is structured. 464 00:29:33,560 --> 00:29:38,080 So essentially because this individual has a individual or 465 00:29:38,080 --> 00:29:39,880 even firm, this could be an entire firm. 466 00:29:39,880 --> 00:29:43,400 It could be a central bank for for for all that matters, right? 467 00:29:43,400 --> 00:29:48,800 Like because there's a certain view that the odds of Solana 468 00:29:48,800 --> 00:29:53,360 falling to less than 60 in the next X or Y months is, is very 469 00:29:53,360 --> 00:29:57,480 low because they have that view, they can sort of like monetize 470 00:29:57,480 --> 00:30:01,680 that view or try to monetize that view in the form of like 471 00:30:01,680 --> 00:30:04,000 this kind of structure like that's the that's the essential 472 00:30:04,000 --> 00:30:06,280 idea. Yeah. 473 00:30:06,360 --> 00:30:09,920 So I think the idea of structure products is really that you can, 474 00:30:10,640 --> 00:30:14,760 you can do trade that exactly fits your precise views. 475 00:30:14,760 --> 00:30:18,560 For example, just now your view is that Solana price will stay 476 00:30:18,560 --> 00:30:20,720 around here. You will not really fall 477 00:30:20,920 --> 00:30:25,720 massively below 75. It may stay here then that's 478 00:30:25,720 --> 00:30:27,720 perfect. You just keep buying a 75 479 00:30:27,760 --> 00:30:30,320 through the structure. So most of our clients who 480 00:30:30,320 --> 00:30:34,920 traded accumulator last year all performed very well, right, 481 00:30:34,920 --> 00:30:37,840 because the spot is going up gradually, slowly and then they 482 00:30:37,840 --> 00:30:40,000 just keep accumulating at the at the discount. 483 00:30:40,480 --> 00:30:45,960 If your view is that Solana will jump to 500 next month, that's 484 00:30:45,960 --> 00:30:47,680 fine. There's there, there, there will 485 00:30:47,680 --> 00:30:49,240 be a different product for you, right. 486 00:30:49,240 --> 00:30:53,160 So we've seen clients buying a very low delta option. 487 00:30:53,160 --> 00:30:57,080 So you can buy basically a one month maybe 200 strike Solana 488 00:30:57,080 --> 00:31:02,160 cores for for virtually nothing like maybe just you know like a 489 00:31:02,800 --> 00:31:06,440 few like maybe a few basis points, a very small price and 490 00:31:06,440 --> 00:31:11,000 then if you're right then you can make a huge return, right. 491 00:31:11,000 --> 00:31:15,280 But obviously the chance, the likelihood of you winning is 492 00:31:15,280 --> 00:31:17,800 also very low, right. But if you have like a really 493 00:31:17,800 --> 00:31:22,400 strong view that this talker will just shoot the moon next 494 00:31:22,400 --> 00:31:25,760 month, then you can also, you should also try options. 495 00:31:25,800 --> 00:31:28,880 Because if you buy options you will always spend a very tiny 496 00:31:28,880 --> 00:31:31,880 amount of premium because you this this option would be like 497 00:31:31,880 --> 00:31:35,440 super cheap because the core strike is very very far away and 498 00:31:35,440 --> 00:31:37,040 then if you're wrong you just lose. 499 00:31:37,200 --> 00:31:39,840 You know the premium which is very cheap, but if you're right 500 00:31:39,840 --> 00:31:45,720 you can get huge profit you. If you do this using using curbs 501 00:31:45,720 --> 00:31:48,760 or using futures, you have a lot of risk, right? 502 00:31:49,120 --> 00:31:51,680 What if it doesn't go up? And if it goes down, then you 503 00:31:51,680 --> 00:31:55,000 will lose a lot of money, right? So I think that's where options 504 00:31:55,000 --> 00:31:59,840 actually comes in. Quite useful for some of the 505 00:31:59,840 --> 00:32:02,880 investors with very specific market views. 506 00:32:04,560 --> 00:32:07,800 So previously in this call you mentioned like the case of like 507 00:32:07,800 --> 00:32:11,360 minors being being users and could you like give an example 508 00:32:11,360 --> 00:32:15,080 of how cryptocurrency minors could could be users of Orbit 509 00:32:15,080 --> 00:32:17,800 products? Sure. 510 00:32:17,800 --> 00:32:22,120 Like we we have clients for some of the clients are even listed 511 00:32:22,640 --> 00:32:29,040 miners and then they again the idea of hedging like for miners 512 00:32:29,040 --> 00:32:34,160 is actually also from inspired from traditional finance. 513 00:32:34,160 --> 00:32:36,840 In traditional finance you have like the oil producer, you have 514 00:32:36,840 --> 00:32:42,000 the gold miners, they also have this exact demand for hedging 515 00:32:42,000 --> 00:32:44,760 their production or their inventory of oil, gold. 516 00:32:45,280 --> 00:32:49,840 So we basically used very say similar structures for the 517 00:32:49,840 --> 00:32:53,040 miners. They can use like very simple 518 00:32:53,040 --> 00:32:56,080 structure as you actually earlier mentioned like a color, 519 00:32:56,520 --> 00:33:00,360 you can sell a core option on Bitcoin price and then you buy a 520 00:33:00,360 --> 00:33:02,920 put right. And this way you are you know 521 00:33:02,920 --> 00:33:07,400 like you your your risk is actually limited within this 522 00:33:07,400 --> 00:33:10,560 range, right, Because your upside is kept, you are giving 523 00:33:10,560 --> 00:33:13,520 up some of your upside gains at the same time you are you are 524 00:33:13,520 --> 00:33:15,440 protected on the downside as well. 525 00:33:15,720 --> 00:33:17,760 This is very simple structure obviously. 526 00:33:18,080 --> 00:33:22,320 But then we also have other type of structures that helps miners 527 00:33:22,680 --> 00:33:27,440 actually sell their tokens on the regular basis at the price 528 00:33:27,440 --> 00:33:30,480 that is better than the than the spot price, right. 529 00:33:30,480 --> 00:33:34,360 So for example, one of the products called Target 530 00:33:34,360 --> 00:33:38,480 Redemption Forward which is from traditional finance where you 531 00:33:38,480 --> 00:33:41,440 can actually sell your for example, right now the the 532 00:33:41,440 --> 00:33:47,800 Bitcoin that 42,000, you can sell Bitcoin at let's say 47,000 533 00:33:47,800 --> 00:33:51,680 Every week you can sell 47, seven thousand and then if if 534 00:33:51,760 --> 00:33:56,680 the spot is below 47,000 you sell 47,000, if it's above, you 535 00:33:56,680 --> 00:34:00,680 still have to sell at 47,000 and then you just count the number 536 00:34:00,680 --> 00:34:03,000 of times where you make money. So. 537 00:34:03,280 --> 00:34:07,640 So if this week is below 47,000, you count one time and then the 538 00:34:07,640 --> 00:34:11,400 next week if it's below 47 that you count 2 two times and then 539 00:34:11,400 --> 00:34:15,080 when this count reach let's say five times, this trade will 540 00:34:15,080 --> 00:34:18,040 terminate. So basically the if the spot 541 00:34:18,040 --> 00:34:21,719 stays at 42,000 every week for next five weeks, then you just 542 00:34:21,719 --> 00:34:25,000 keep selling at 47,000 and then the trade will expire. 543 00:34:25,080 --> 00:34:27,199 The trade will be able to terminate right? 544 00:34:27,280 --> 00:34:31,080 But then if the spot goes above 47,000, the count will not 545 00:34:31,360 --> 00:34:33,280 accrue because the count will stop. 546 00:34:33,880 --> 00:34:35,320 It cuts only if it's below, right? 547 00:34:35,320 --> 00:34:38,239 So it will not stop and then you will still have to sell at 548 00:34:38,239 --> 00:34:41,159 47,000. So all these structure products 549 00:34:41,199 --> 00:34:46,520 in a way is trying to create an asymmetric payoff, right? 550 00:34:46,800 --> 00:34:49,760 And then because if you you accept this asymmetric payoff, 551 00:34:50,080 --> 00:34:53,840 then you will be compensated with a better strike than the 552 00:34:53,840 --> 00:34:58,120 current spot. So in this Bitcoin case, it's 553 00:34:58,120 --> 00:35:03,200 almost like if the market is kind of range bound like going 554 00:35:03,200 --> 00:35:06,520 up going down and it like and it's it's crossing the 47 555 00:35:06,520 --> 00:35:10,680 barrier many times that's the case that might be bad. 556 00:35:11,520 --> 00:35:15,960 All these type of trades, right, Your view has to be have. 557 00:35:16,160 --> 00:35:18,200 You need to have a bit of range bound view. 558 00:35:18,480 --> 00:35:21,680 You need to think that the spot will stay around here. 559 00:35:21,680 --> 00:35:24,200 You can go up a bit, you can go down a bit, that's fine. 560 00:35:24,720 --> 00:35:26,720 But then if your view is, that spot will. 561 00:35:26,800 --> 00:35:31,640 Let's say if your view is that Bitcoin will go to 100,000 next 562 00:35:31,640 --> 00:35:35,080 next month, then obviously you shouldn't hedge. 563 00:35:35,160 --> 00:35:36,640 You shouldn't do any hedge, right. 564 00:35:36,680 --> 00:35:38,440 You should just hold now and then you should probably 565 00:35:38,440 --> 00:35:40,360 increase your long position, right. 566 00:35:40,640 --> 00:35:44,000 And if your but if your view is that you will stay in this range 567 00:35:44,000 --> 00:35:49,600 around the like below 47,000 up and down slightly then then 568 00:35:49,600 --> 00:35:52,120 that's yeah then these products can be useful. 569 00:35:52,840 --> 00:35:55,880 So there's there's no like there's no product that will you 570 00:35:55,880 --> 00:35:59,680 know be the perfect product that will that guaranteed to make you 571 00:35:59,680 --> 00:36:03,200 money that doesn't exist. So you always need to have your 572 00:36:03,200 --> 00:36:05,560 views. So we we we have like minus 573 00:36:05,560 --> 00:36:08,360 client who you know have a good size of the market. 574 00:36:08,560 --> 00:36:12,600 You know they they they they put on some hedges when they think 575 00:36:12,600 --> 00:36:16,720 the market is like top ish. So then for example before the 576 00:36:16,720 --> 00:36:22,360 ETF news right their their clients selling bitcoins back 577 00:36:22,360 --> 00:36:24,720 then like that then yeah all these trades went pretty well 578 00:36:24,720 --> 00:36:26,640 because now the Bitcoin price has come off right. 579 00:36:28,200 --> 00:36:34,240 So on your website I saw a a product that that felt really 580 00:36:34,240 --> 00:36:40,360 cool which is kind of like the hedging UNISWAP V3 impermanent 581 00:36:40,360 --> 00:36:43,040 loss, right. So maybe to provide some 582 00:36:43,040 --> 00:36:47,840 background, when you provide liquidity to UNISWAP pools or 583 00:36:47,840 --> 00:36:51,360 maybe not just UNISWAP but similar mechanisms like Joe or 584 00:36:51,360 --> 00:36:54,160 Trader Joe's or Avalanche or something AMM. 585 00:36:54,800 --> 00:36:57,680 Then then there are these cases in which. 586 00:36:58,120 --> 00:37:01,840 So the essential idea is if I'm if I'm supplying 2 assets ETH 587 00:37:01,840 --> 00:37:06,360 and USD, my best case is that ETH does not move against the 588 00:37:06,760 --> 00:37:10,160 USD. The more these assets move 589 00:37:10,160 --> 00:37:15,560 against each other, the worse my performance could be compared to 590 00:37:15,560 --> 00:37:20,320 like maybe just holding those pair of assets 5050 or something 591 00:37:20,320 --> 00:37:23,280 like that. And so like the quantification 592 00:37:23,280 --> 00:37:29,440 of how much worse my position is in A in an AMM compared to what 593 00:37:29,440 --> 00:37:32,160 would have what I would have achieved just by holding them 594 00:37:32,160 --> 00:37:38,280 5050 is like this called this imponent loss and and you have a 595 00:37:38,280 --> 00:37:41,360 product to hedge that like. So could you explain how it how 596 00:37:41,360 --> 00:37:44,160 it works? Yeah. 597 00:37:44,160 --> 00:37:48,680 So as you just explained, so your swap or this like yield 598 00:37:48,680 --> 00:37:53,600 farming was really popular right in in 20, especially in 20 and 599 00:37:53,600 --> 00:37:57,800 two or last year, still a little bit, but the all the liquid 600 00:37:57,800 --> 00:37:59,760 providers, they face a big problem, right. 601 00:37:59,760 --> 00:38:02,800 So initially they just look at the yield, but then they realize 602 00:38:02,800 --> 00:38:05,360 there is a, there's a cost, the cost is actually implemented 603 00:38:05,360 --> 00:38:07,720 loss, right. So you basically have a question 604 00:38:07,720 --> 00:38:11,360 on one side, you earn the fees from the protocol from UNISWAP, 605 00:38:11,400 --> 00:38:14,200 on the other side you will lose implement loss. 606 00:38:15,000 --> 00:38:18,640 So how do you actually hedge it? So the implement loss, as you 607 00:38:18,640 --> 00:38:22,480 said, is actually, at least for UNISWAP, is deterministic. 608 00:38:23,200 --> 00:38:26,280 There's a formula, there's actually a deterministic 609 00:38:26,320 --> 00:38:30,680 mathematical formula that calculates the implement loss. 610 00:38:30,680 --> 00:38:34,640 If you know the initial spot level and the final spot level, 611 00:38:34,640 --> 00:38:38,760 then you know exactly how much is the implement loss, right? 612 00:38:39,120 --> 00:38:44,040 So for us we actually when we start to look at it, we realize 613 00:38:44,040 --> 00:38:50,400 that this is deterministic. So it's actually just an option 614 00:38:50,440 --> 00:38:55,160 or derivative in a way is not a normal derivative, but it is an 615 00:38:55,160 --> 00:38:58,800 exotic derivative with a very special formula. 616 00:38:59,120 --> 00:39:04,040 But in the end of the day is a formula, the payoff is depending 617 00:39:04,080 --> 00:39:06,560 only on the final price and the initial price. 618 00:39:07,200 --> 00:39:11,800 So we by that time we did build our model to you know like run 619 00:39:11,800 --> 00:39:14,880 all the Monte Carlo simulations and then you know, so that we 620 00:39:14,880 --> 00:39:20,320 can actually price any payoff. So not just like the regular 621 00:39:20,320 --> 00:39:23,360 European value option payoff or the futures payoff, we can price 622 00:39:23,400 --> 00:39:26,840 any payoff. You write me a math formula that 623 00:39:26,840 --> 00:39:30,440 depends on the final price. I can actually calculate 624 00:39:30,440 --> 00:39:34,840 expected value of that formula as of today, right. 625 00:39:34,840 --> 00:39:38,200 So then in the end we realize that OK, it's nothing but just 626 00:39:38,200 --> 00:39:42,200 exotic exotic option. So there we actually can price 627 00:39:42,200 --> 00:39:46,720 this option, offer it to clients and then we have the theoretical 628 00:39:47,360 --> 00:39:50,560 value of this option. So the clients basically they 629 00:39:50,560 --> 00:39:55,400 can pay us an upfront premium, let's say 1% is unknown fixed 630 00:39:55,680 --> 00:39:59,400 cost 1%. And then at the end we will 631 00:39:59,480 --> 00:40:04,320 reimburse this clients the actual, the actual input, the 632 00:40:04,320 --> 00:40:06,160 loss and how do we hedge it, right. 633 00:40:06,160 --> 00:40:09,000 We we obviously not just taking the the other side and do 634 00:40:09,000 --> 00:40:12,560 nothing that is not what we do. So we actually have to hedge it. 635 00:40:12,880 --> 00:40:16,000 So we hedge it as if it was option, right? 636 00:40:16,000 --> 00:40:19,040 It is actually an option. So we will decompose the risk 637 00:40:19,880 --> 00:40:25,840 into the the Greeks, right, the delta Vega and all these risk 638 00:40:26,200 --> 00:40:30,880 and then we will hedge this risk accordingly using Perps, the 639 00:40:30,880 --> 00:40:33,400 options etcetera. So we we have this basically a 640 00:40:33,400 --> 00:40:38,240 very quantitative and scientific framework for us to decompose 641 00:40:38,240 --> 00:40:42,040 the implement loss risk and then to hedge it in the market. 642 00:40:43,480 --> 00:40:46,280 Yeah, that's really cool. So the essential thing is if 643 00:40:46,280 --> 00:40:49,280 somebody wants to provision liquidity to a pool and they 644 00:40:49,280 --> 00:40:54,160 expect the fees that they earn from provisioning liquidity are 645 00:40:54,160 --> 00:40:56,640 going to be high, higher than probably like the market 646 00:40:56,640 --> 00:40:59,320 expects. And they're willing to give us 647 00:40:59,320 --> 00:41:02,960 some of the give up some of these fees in order to protect 648 00:41:02,960 --> 00:41:06,760 against the impermanent loss. So if you have a pool where the 649 00:41:06,760 --> 00:41:10,880 essential structure of it is, is there's two assets, you expect 650 00:41:10,880 --> 00:41:13,200 volatility between those two assets, right? 651 00:41:13,200 --> 00:41:16,480 Like you expect one of those assets to move quite a lot 652 00:41:16,480 --> 00:41:18,200 against the other assets. So there's underlying 653 00:41:18,200 --> 00:41:22,120 volatility, but you also expect a lot of fees to occur. 654 00:41:22,840 --> 00:41:27,280 Then probably for such a user, it's like giving up some portion 655 00:41:27,280 --> 00:41:30,400 of their fee income or maybe all of that fee income in order to 656 00:41:30,400 --> 00:41:34,000 protect against that volatility is kind of what your engineering 657 00:41:34,000 --> 00:41:37,040 allows. Exactly. 658 00:41:37,040 --> 00:41:40,480 So these two things are usually correlated. 659 00:41:40,640 --> 00:41:42,640 So which means it is very interesting, right. 660 00:41:42,640 --> 00:41:47,280 So if a pool is generating a lot of fees, usually the underlying 661 00:41:47,280 --> 00:41:51,120 asset underlying pair is also a very volatile pair, right. 662 00:41:51,120 --> 00:41:55,320 So so and and in the end of the day there's no free lunch as I 663 00:41:55,320 --> 00:41:59,640 said earlier, right. So you you on one side, you have 664 00:41:59,640 --> 00:42:04,400 the expected fees, so you you kind of do a research, you do 665 00:42:04,400 --> 00:42:09,200 estimation, you you kind of OK, I expect to receive maybe 15% 666 00:42:09,240 --> 00:42:13,880 annualized fee from this pool. And then on the other hand, I'm 667 00:42:13,880 --> 00:42:17,600 willing to maybe buy protection, but then obviously the the price 668 00:42:17,600 --> 00:42:19,560 of the production needs to make sense, right. 669 00:42:19,560 --> 00:42:23,880 If like the production cost 20% annualized, then it doesn't make 670 00:42:23,880 --> 00:42:26,320 sense. So maybe the price is 7%. 671 00:42:26,600 --> 00:42:31,360 OK, then I buy the protection and then I'm left with 8% almost 672 00:42:31,440 --> 00:42:35,680 risk free returns, right. So this sounds like too good to 673 00:42:35,680 --> 00:42:39,040 be true, which again it is too good to be true because over 674 00:42:39,040 --> 00:42:42,480 time I think UNISWAP, even though the UNISWAP liquid 675 00:42:42,520 --> 00:42:47,320 provision is a completely separate supply demand system 676 00:42:47,560 --> 00:42:51,120 ecosystem minds own. On the other hand, when we price 677 00:42:51,120 --> 00:42:54,400 the protection, we are not looking at UNISWAP at all, 678 00:42:54,560 --> 00:42:56,080 right? We're not looking at UNISWAP, 679 00:42:56,680 --> 00:42:58,480 the size of the pool, the supply demand. 680 00:42:58,760 --> 00:43:03,000 We are only using one parameter which is the implied volatility. 681 00:43:03,000 --> 00:43:06,960 And the implied volatility is decided by exchange. 682 00:43:06,960 --> 00:43:11,560 For example terabits, so terabit trays options which has the 683 00:43:11,560 --> 00:43:14,240 implied volatility. So we are talking about two 684 00:43:14,240 --> 00:43:17,680 separate completely separate supply and demand markets and 685 00:43:17,680 --> 00:43:21,120 systems. But surprisingly all the time 686 00:43:21,560 --> 00:43:24,960 these two markets are convergent, which means that 687 00:43:25,200 --> 00:43:30,040 initially if you expect to earn a lot of fees from UNISWAP and 688 00:43:30,040 --> 00:43:35,320 then you buy a protection from us which is based on derivative 689 00:43:35,320 --> 00:43:37,400 implied role. Initially. 690 00:43:37,400 --> 00:43:39,840 Let's say you you expect there is a bit of difference between 691 00:43:39,840 --> 00:43:42,520 the two and then you can make money like you can, you are left 692 00:43:42,520 --> 00:43:45,880 with the risk free returns. But all the time this return 693 00:43:45,880 --> 00:43:49,120 will actually is actually disappear, right, Or at least on 694 00:43:49,120 --> 00:43:53,880 the probabilistic basis, on the average, right, maybe on one 695 00:43:53,880 --> 00:43:57,840 trade, you can still make money. But on average, you probably end 696 00:43:57,840 --> 00:44:03,280 up with no, no, no return or no expected return at least, which 697 00:44:03,280 --> 00:44:06,400 means that the market is actually getting efficient, 698 00:44:06,760 --> 00:44:08,880 right. It's getting efficient, yeah. 699 00:44:08,880 --> 00:44:13,360 So, yeah, I think in the end of the day a lot of the funds who 700 00:44:13,360 --> 00:44:16,920 run this decree provision or yield farming strategy realize 701 00:44:16,920 --> 00:44:19,840 that it's actually very hard to actually to make money if you're 702 00:44:19,840 --> 00:44:23,560 just looking at the fees. Because in the end there in the 703 00:44:23,560 --> 00:44:27,920 end of the day, your fees and the impermanent loss will just 704 00:44:28,400 --> 00:44:32,120 be the same on average in the end or maybe you are left with a 705 00:44:32,120 --> 00:44:35,280 risk risk free rate. Like if you are talking about 706 00:44:35,280 --> 00:44:38,840 dollars, you are left, you make 5%, but you're not making more 707 00:44:38,840 --> 00:44:41,640 than that, you're not making extra performance compared to 708 00:44:41,640 --> 00:44:44,800 that. And so I think that this overall 709 00:44:44,800 --> 00:44:48,560 yield farming strategies have become less popular over the 710 00:44:48,560 --> 00:44:52,320 last one or two years and especially when the funding rate 711 00:44:52,320 --> 00:44:55,840 of dollar itself has gone up so much, right? 712 00:44:55,840 --> 00:45:00,000 If you do nothing, you just lend dollar, you'll probably get ten 713 00:45:00,000 --> 00:45:04,120 1520%, right. So why bother doing all this 714 00:45:04,120 --> 00:45:07,200 yield farming and then you still have to take the impairment 715 00:45:07,200 --> 00:45:10,680 loss? Yeah, that's that's that's 716 00:45:10,680 --> 00:45:15,040 really interesting. So actually like my curiosity is 717 00:45:15,040 --> 00:45:18,840 kind of in all of these examples that we have taken, right, like 718 00:45:20,080 --> 00:45:23,080 it might start from actually Mark Cuban example, but it could 719 00:45:23,080 --> 00:45:27,640 also be the accumulator or the TARP or this liquidity 720 00:45:27,640 --> 00:45:31,440 provisioning example. In a sense, when I look at the 721 00:45:31,440 --> 00:45:35,680 contract between like one of your clients in orbit, the 722 00:45:35,680 --> 00:45:38,000 underlying is the price of some asset, right? 723 00:45:38,000 --> 00:45:40,920 It's the price of some asset against some, some reference 724 00:45:40,920 --> 00:45:45,760 asset. Could the underlying be the 725 00:45:45,800 --> 00:45:49,840 occurrence of an event? Like could the underlying be for 726 00:45:49,840 --> 00:45:55,560 example a bridge will get hacked, it's a binary event or 727 00:45:55,560 --> 00:46:01,800 an ETF will get approved? And can you do create, yeah, 728 00:46:02,480 --> 00:46:07,080 derivatives or structures based on like events, not prices? 729 00:46:07,080 --> 00:46:10,520 Or is that the role of a prediction market, not of 730 00:46:10,520 --> 00:46:14,600 structured? Products, I mean what you 731 00:46:14,600 --> 00:46:19,000 mentioned, what you describe is like buying a lottery, right, or 732 00:46:19,000 --> 00:46:21,280 or or prediction or something like that. 733 00:46:21,280 --> 00:46:26,320 Yeah, I mean theoretically is all possible, but we need a 734 00:46:26,680 --> 00:46:30,160 primary market of the underlying asset first, right. 735 00:46:30,160 --> 00:46:33,840 So when we do the accumulate, when we all do a TAFE or do all 736 00:46:33,840 --> 00:46:37,440 these like barrier options, we need to be able to hedge the 737 00:46:37,440 --> 00:46:40,840 primary risk which is the directional, the underlying 738 00:46:41,040 --> 00:46:45,000 directional risk. When you say I want to run this 739 00:46:45,000 --> 00:46:51,840 like whether ETHETF will be approved, I have nothing to use 740 00:46:51,840 --> 00:46:56,040 to hedge my risk apart from taking your taking the other 741 00:46:56,040 --> 00:47:00,760 side of you right. But, but if we can like some of 742 00:47:00,760 --> 00:47:04,360 the like a betting house, right, they can still run this because 743 00:47:04,360 --> 00:47:08,520 they try to adjust the the, the, the ratio, the odds right to 744 00:47:08,520 --> 00:47:12,880 match both sides, right. They're not taking any risk, 745 00:47:13,040 --> 00:47:15,800 right, they're just like a match the two sides. 746 00:47:16,240 --> 00:47:19,120 So it's very different. So for us we still need to have 747 00:47:20,160 --> 00:47:23,400 markets where we can hedge the underlying assets. 748 00:47:23,400 --> 00:47:26,600 So for if for example if you have underlying, if you have a 749 00:47:26,600 --> 00:47:32,800 market where people starts to trade the all of ETF getting 750 00:47:32,800 --> 00:47:36,640 approved then we can create options and structure products 751 00:47:36,680 --> 00:47:39,520 on top of that. But we still need to have a 752 00:47:39,520 --> 00:47:41,360 market where we can hedge our risk first. 753 00:47:43,080 --> 00:47:46,840 So that means like if you had highly liquid prediction markets 754 00:47:46,840 --> 00:47:51,120 on crypto for these events, then you could do like these fancy 755 00:47:51,120 --> 00:47:54,720 options on top and. We could, yeah, yeah, we could. 756 00:47:54,720 --> 00:47:56,600 But the. Constraint is more that those 757 00:47:56,600 --> 00:47:59,120 highly liquid prediction markets don't exist today. 758 00:48:00,800 --> 00:48:01,760 Yeah, exactly. Yeah. 759 00:48:02,720 --> 00:48:06,200 So, so right now I think those prediction market or prediction 760 00:48:07,040 --> 00:48:09,920 products, I think it's still more the job of the like the 761 00:48:09,920 --> 00:48:14,640 betting betting house, right rather than a trading desk. 762 00:48:16,720 --> 00:48:20,440 So at the start of this interview, you mentioned that 763 00:48:20,440 --> 00:48:22,960 you kind of like entered the crypto space in the last two 764 00:48:22,960 --> 00:48:28,920 years and you founded Orbit, Co founded Orbit in the last two 765 00:48:28,920 --> 00:48:31,480 years. And I think like that's an 766 00:48:31,480 --> 00:48:37,080 interesting time, right? Because in this time first Terra 767 00:48:37,080 --> 00:48:41,640 went bust, but then kind of like this Genesis went bust and this 768 00:48:41,640 --> 00:48:47,760 Genesis was was a huge was a huge event because people 769 00:48:47,760 --> 00:48:50,920 actually took counterparty risk against Genesis. 770 00:48:50,920 --> 00:48:54,800 Like when I told he there is ideally no counterparty. 771 00:48:54,800 --> 00:48:58,120 But in the case of Genesis Products, Genesis used to be the 772 00:48:58,120 --> 00:49:01,480 counterparty and this huge counterparty went bust. 773 00:49:02,600 --> 00:49:07,240 And you were also doing a business in which like in many 774 00:49:07,240 --> 00:49:10,520 of these products, Orbit is a counterparty. 775 00:49:11,200 --> 00:49:16,000 So how was that period like when the market was scared of 776 00:49:16,000 --> 00:49:18,720 counterparty risk and yet you were building a business that 777 00:49:18,720 --> 00:49:23,200 was based on counterparty risk? Yeah, I think that market is 778 00:49:23,200 --> 00:49:26,320 still scared of counterparty risk, which is good. 779 00:49:26,320 --> 00:49:28,960 I think at the beginning of crypto market people don't are 780 00:49:28,960 --> 00:49:32,640 not really aware of this risk. But now people are very aware of 781 00:49:32,640 --> 00:49:35,280 this risk and we are also very off this, this risk. 782 00:49:35,800 --> 00:49:38,160 There are many ways to mitigate this risk. 783 00:49:38,160 --> 00:49:43,520 For example, we have signed ESA, which is at the framework of 784 00:49:43,520 --> 00:49:47,520 traditional finance, managing the counterparty credit risk. 785 00:49:48,040 --> 00:49:50,840 And so we have actually signed this with many of our 786 00:49:50,840 --> 00:49:56,200 counterparties, right? So 'cause then we actually just 787 00:49:56,200 --> 00:50:03,240 managed this daily margin and collateral that I mean that 788 00:50:03,240 --> 00:50:06,560 still doesn't remove the counterparty risk completely, 789 00:50:06,800 --> 00:50:11,360 but it actually mitigate the risk significantly because your 790 00:50:11,360 --> 00:50:15,600 exposure is very limited to mostly just your initial margin 791 00:50:15,600 --> 00:50:18,320 and also some of the gap risk during the day. 792 00:50:18,640 --> 00:50:23,200 But otherwise your exposure is collateralized the with the with 793 00:50:23,200 --> 00:50:26,720 the collateral, right. So that's what traditional 794 00:50:26,720 --> 00:50:29,920 finance use the framework, the traditional finance has adopted 795 00:50:29,920 --> 00:50:33,320 to manage the counterpart risk. Traditional finance also learn 796 00:50:33,320 --> 00:50:37,280 it after the Lehman Brothers crisis, I mean it existed 797 00:50:37,280 --> 00:50:41,160 before, but it is really after Lehman and the great financial 798 00:50:41,160 --> 00:50:45,960 crisis that traditional banks started to be become more aware 799 00:50:45,960 --> 00:50:49,360 of this and then set up all these credit risk desk within 800 00:50:49,360 --> 00:50:51,360 the bank, so the same. So we're doing this in crypto. 801 00:50:51,560 --> 00:50:55,320 We also use this multi stick wallet solution with some of our 802 00:50:55,320 --> 00:50:58,280 counterparties, right. In traditional finance you would 803 00:50:58,320 --> 00:51:04,000 actually use a third party custodian bank to to do this for 804 00:51:04,000 --> 00:51:05,840 you, right? So to sit between the two 805 00:51:05,840 --> 00:51:08,840 counter parties and and then people basically send and 806 00:51:08,880 --> 00:51:12,040 receive money to one from this custodian. 807 00:51:12,480 --> 00:51:16,560 So in crypto we have actually a innovative solution, a crypto 808 00:51:16,560 --> 00:51:19,080 based innovative solution to solve this problem. 809 00:51:19,440 --> 00:51:23,120 So instead of actually involving a third party, they are third 810 00:51:23,120 --> 00:51:27,400 parties obviously in crypto as well, but they are just not 811 00:51:27,400 --> 00:51:31,960 financially as strong, as strong as the real custodian in 812 00:51:31,960 --> 00:51:34,640 traditional finance right, Some of the custodian. 813 00:51:34,640 --> 00:51:38,840 So instead of actually having to take their credit risk, why not 814 00:51:38,840 --> 00:51:42,840 just to set up a framework between the two counterparties 815 00:51:42,840 --> 00:51:46,720 directly using the crypto solution. 816 00:51:46,720 --> 00:51:51,080 So for example, we use this multi SIG wallet, so we give for 817 00:51:51,080 --> 00:51:55,040 example 4 total, 4 keys, 2 keys on each side. 818 00:51:55,480 --> 00:52:00,040 And then for each transfer in and out, we need, sorry, each 819 00:52:00,040 --> 00:52:02,000 transfer out, you don't need approvals. 820 00:52:02,000 --> 00:52:05,360 But to transfer out of this wallet, you need, let's say 821 00:52:05,360 --> 00:52:09,320 three out of four keys to enable this transfer, right. 822 00:52:09,440 --> 00:52:12,840 So in this case, we only need to actually agree between the two 823 00:52:12,840 --> 00:52:17,360 quarter parties and we don't, neither party needs to give the 824 00:52:17,360 --> 00:52:21,440 money to a third party and then in that case, both party will be 825 00:52:21,440 --> 00:52:24,400 exposed to the credit risk of that third party, right? 826 00:52:24,400 --> 00:52:28,000 I mean if that third party was JP Morgan, I'm probably fine. 827 00:52:28,360 --> 00:52:31,520 But in crypto there's no JP Morgan, there's no, you know, 828 00:52:31,520 --> 00:52:33,720 there's no like big banks with trillions of assets. 829 00:52:33,720 --> 00:52:38,880 So I I I don't necessarily trust a third party more than I trust 830 00:52:38,880 --> 00:52:40,240 my counter party directly, right. 831 00:52:40,240 --> 00:52:43,840 So then we actually use this solutions with many of our 832 00:52:43,840 --> 00:52:47,880 counter parties that again greatly reduced the counter 833 00:52:47,880 --> 00:52:51,960 party concerns and this is something that is actually 834 00:52:52,360 --> 00:52:55,360 didn't exist in traditional finance and I think this is a 835 00:52:55,360 --> 00:52:57,800 great thing. I mean traditional finance maybe 836 00:52:57,800 --> 00:53:00,960 one day will actually also use this to save, I don't know 837 00:53:00,960 --> 00:53:05,280 millions of cost of using a third party custodian because 838 00:53:05,280 --> 00:53:08,080 that third party custodian doesn't do much more than just 839 00:53:08,440 --> 00:53:13,200 you know sending the money you sent to me to the other party or 840 00:53:13,200 --> 00:53:16,480 return the money back to you. And, you know, so there's 841 00:53:16,480 --> 00:53:17,760 something that you can do yourself. 842 00:53:18,640 --> 00:53:20,320 That's that's really interesting, right? 843 00:53:20,640 --> 00:53:23,120 Yeah. Like somebody like you that's 844 00:53:23,120 --> 00:53:26,680 coming in from Deutsche Bank, maybe this was not the first 845 00:53:26,680 --> 00:53:29,560 thing you started off with, but you're like, OK, actually smart 846 00:53:29,560 --> 00:53:33,280 contracts can provide utility in removing the custodian and maybe 847 00:53:33,280 --> 00:53:37,480 saving you the 40 or 50 basis points on a particular trade and 848 00:53:38,120 --> 00:53:40,560 maybe on a single trade that's not so big. 849 00:53:40,560 --> 00:53:45,080 But then added across all of your clients that might end up 850 00:53:45,080 --> 00:53:48,240 kind of increasing your gross margin of your business. 851 00:53:48,880 --> 00:53:50,680 That's interesting. Absolutely, yeah. 852 00:53:52,440 --> 00:53:56,120 So using like this kind of like smart contract collateral 853 00:53:56,120 --> 00:54:00,000 management systems, you can address some forms of 854 00:54:00,000 --> 00:54:02,080 counterparty risk, but not all of them. 855 00:54:02,280 --> 00:54:05,400 Would that be accurate? Absolutely. 856 00:54:05,400 --> 00:54:09,560 I I, I I think that it's impossible to remove 857 00:54:09,920 --> 00:54:13,160 counterparty risk completely. You do a, you do a transaction 858 00:54:13,160 --> 00:54:16,320 with someone. You have to accept some level of 859 00:54:16,320 --> 00:54:19,560 counterparty risk. So you mitigate the risk by 860 00:54:19,560 --> 00:54:21,360 doing due diligence at the beginning. 861 00:54:21,360 --> 00:54:23,200 You need to know your contour party, right. 862 00:54:23,680 --> 00:54:26,640 So then and then you have different ways to mitigate the 863 00:54:26,640 --> 00:54:28,560 risk. But there's no way, I don't 864 00:54:28,560 --> 00:54:31,960 think at this stage there's no way to completely remove it 865 00:54:32,520 --> 00:54:36,440 without sacrificing efficiency there. 866 00:54:36,440 --> 00:54:40,120 Obviously, there are ways to to remove it completely, but then 867 00:54:40,120 --> 00:54:43,360 you will lose other things like efficiency. 868 00:54:43,360 --> 00:54:46,200 You have to be fully collateralized, etcetera, 869 00:54:46,200 --> 00:54:48,600 etcetera. And then if the whole financial 870 00:54:48,600 --> 00:54:52,000 system runs that way, if everything has to be fully 871 00:54:52,000 --> 00:54:56,000 collateralized in financial system, the financial system 872 00:54:56,480 --> 00:54:59,600 doesn't work right, There's no efficiency anymore. 873 00:55:00,480 --> 00:55:04,160 Yeah, nothing will will really happen and nothing will move 874 00:55:04,160 --> 00:55:08,720 forward. So often in crypto that is I 875 00:55:08,720 --> 00:55:12,560 come across this mindset that like people want to build 876 00:55:14,200 --> 00:55:18,280 protocols for for financial products. 877 00:55:18,280 --> 00:55:20,280 Right. Like in a sense maybe the 878 00:55:20,280 --> 00:55:23,680 classic example is actually Bitcoin where it's like there's 879 00:55:23,680 --> 00:55:25,520 a there's a thing the central bank does. 880 00:55:26,240 --> 00:55:30,000 And Satoshi's question was almost like can just can you 881 00:55:30,000 --> 00:55:35,560 just replace that with an algorithm And yes you can but 882 00:55:35,800 --> 00:55:38,320 but then of course there has to be a new asset and it has to 883 00:55:38,320 --> 00:55:41,440 build liquidity and and it's possible, right. 884 00:55:42,680 --> 00:55:47,160 But often like you see like defy asking that question often right 885 00:55:47,160 --> 00:55:52,000 like so overnight borrowing markets, can you do that And 886 00:55:52,000 --> 00:55:56,080 then Robert Leschner asks that question and then comes up with 887 00:55:56,080 --> 00:56:01,600 compound where it's like OK if he algorithmizes so overnight 888 00:56:01,600 --> 00:56:05,200 borrowing, overnight lending part of it probably and then 889 00:56:05,200 --> 00:56:07,960 that's that's compound. So what do you think like in 890 00:56:07,960 --> 00:56:11,760 this, in the structure products on the market, are there parts 891 00:56:11,760 --> 00:56:15,560 of it that can be protocolized like that or does it necessarily 892 00:56:15,560 --> 00:56:20,040 have to be a human on the other side because like structuring is 893 00:56:20,040 --> 00:56:22,760 hard and there is always going to be counterparty risk. 894 00:56:22,760 --> 00:56:27,880 So do you think protocolization of of the market you are in is 895 00:56:27,880 --> 00:56:31,080 is possible or is it intrinsically not possible? 896 00:56:32,560 --> 00:56:35,880 I think it's possible. I think it's possible but is 897 00:56:36,040 --> 00:56:39,680 very far from the current stage. I think we are still far from 898 00:56:39,680 --> 00:56:43,240 there is possible. I think the problem we we 899 00:56:43,240 --> 00:56:48,800 obviously work with some of the D5 applications and also I did 900 00:56:48,800 --> 00:56:51,800 some research myself. I think the, the, the few issues 901 00:56:51,800 --> 00:56:56,360 I think with the D5 applications right now first of all I think 902 00:56:56,360 --> 00:57:01,040 it's the the efficiency, I think the the, the capital efficiency 903 00:57:01,040 --> 00:57:05,160 generally pretty poor right. The traditional financial, 904 00:57:05,440 --> 00:57:09,280 traditional financial industries thrives because of all these 905 00:57:09,280 --> 00:57:13,240 capital efficiency. You have the custodian, you have 906 00:57:13,240 --> 00:57:16,680 prime brokers, you have all the banks facilitating you know 907 00:57:16,680 --> 00:57:20,640 lending, borrowing etcetera. You can rehabilitate the assets. 908 00:57:20,640 --> 00:57:26,240 So it creates a really efficient market here to ensure security 909 00:57:26,240 --> 00:57:27,800 and safety. Everything is fully 910 00:57:27,800 --> 00:57:31,520 collateralized etcetera. And then this just is not really 911 00:57:31,920 --> 00:57:35,720 viable in the long term. So to solve this problem we 912 00:57:35,720 --> 00:57:41,400 need, I would say we need a very integrated and broad framework 913 00:57:41,400 --> 00:57:44,920 for all the D fabrication. So that you know we can actually 914 00:57:44,920 --> 00:57:49,080 integrate not just the 1D file on its own, but the D files can 915 00:57:49,080 --> 00:57:52,960 integrate and be connected with each other and also with 916 00:57:52,960 --> 00:57:59,920 exchanges so that your capital can be reused, rehabble you know 917 00:57:59,920 --> 00:58:02,880 across different venues. But this I just don't see how 918 00:58:02,880 --> 00:58:07,120 this is happening anytime soon unless some someone is leading 919 00:58:07,120 --> 00:58:11,960 this effort to create a big platform where all the DIF 920 00:58:11,960 --> 00:58:15,440 applications get on this platform including exchanges 921 00:58:15,520 --> 00:58:17,760 including, you know other institutions. 922 00:58:18,960 --> 00:58:22,240 This is number 1, #2 is I think the user experience is still 923 00:58:22,480 --> 00:58:26,880 pretty bad these days with most of the DIFA app definitely not 924 00:58:27,080 --> 00:58:31,560 designed or built for institutional players. 925 00:58:31,560 --> 00:58:35,880 They may be OK for retail but for institutions like sometimes 926 00:58:35,880 --> 00:58:40,920 like, yeah, we we just don't think that is good enough for 927 00:58:41,000 --> 00:58:44,040 usable at all for our for our purposes right. 928 00:58:45,040 --> 00:58:48,640 For example some of the protocols we make a simple trade 929 00:58:48,640 --> 00:58:52,440 or transfers we need so many different approvals and the 930 00:58:52,440 --> 00:58:54,600 like. It's just it's just crazy And 931 00:58:54,600 --> 00:58:57,160 then if it's one retail guy it's fine. 932 00:58:57,160 --> 00:59:00,200 He just approved for himself. But as a institution we have our 933 00:59:00,240 --> 00:59:04,440 own approval policies and processes so it becomes really 934 00:59:04,440 --> 00:59:07,160 bad. The third one and also the most 935 00:59:07,160 --> 00:59:09,320 important one I think is the hack risk. 936 00:59:11,160 --> 00:59:13,920 So the smart contract risk and the hack risk. 937 00:59:13,920 --> 00:59:16,240 So this is the biggest problem, right? 938 00:59:16,560 --> 00:59:21,920 I think even well established protocols can still get hacked. 939 00:59:22,480 --> 00:59:25,600 So let alone some new app, new protocols. 940 00:59:26,120 --> 00:59:29,960 So we we can't really be comfortable enough to put our 941 00:59:29,960 --> 00:59:35,200 company's money in there. For example, a new protocol what 942 00:59:35,200 --> 00:59:39,280 if it got hacked, right. So I didn't I I I don't know I 943 00:59:39,280 --> 00:59:40,880 don't have the answer to this question. 944 00:59:40,880 --> 00:59:43,800 I think the second one probably is probably probably the easiest 945 00:59:43,800 --> 00:59:48,000 to solve but then the hack risk, the smart contract risk is kind 946 00:59:48,000 --> 00:59:52,520 of inherent to this DEFY growth, right? 947 00:59:52,680 --> 00:59:55,320 I hope like one day there will be better technology or better 948 00:59:55,320 --> 00:59:58,600 ways to ensure that smart contracts are safe. 949 01:00:00,240 --> 01:00:03,720 What's what's really interesting as a as a technologist here is 950 01:00:04,920 --> 01:00:11,280 when it TDM was being built they were like I groups of dissenting 951 01:00:11,280 --> 01:00:16,000 technologists that were like we should build smart contracts 952 01:00:16,000 --> 01:00:19,720 differently such such that you know the properties of smart 953 01:00:19,720 --> 01:00:23,800 contracts can be mathematically proven and and it actually it is 954 01:00:23,840 --> 01:00:28,960 possible to build such systems but they lost out to kind of 955 01:00:28,960 --> 01:00:34,720 like this Ethereum stack and the solidity where this is kind of 956 01:00:34,720 --> 01:00:38,440 hard but maybe they actually now they're smart contracts are 957 01:00:38,440 --> 01:00:41,200 proliferating more and more. We would have those kind of 958 01:00:41,200 --> 01:00:45,960 ultra secure mathematically proven systems come to fruition 959 01:00:45,960 --> 01:00:50,920 someday and maybe actually for the real trillions of dollars of 960 01:00:50,920 --> 01:00:55,720 institutional money to come in and do fancy things with kind of 961 01:00:56,240 --> 01:00:59,920 smart contracts maybe like that high level of quality assurance 962 01:00:59,920 --> 01:01:03,960 is just needed and our industry doesn't have that at at this 963 01:01:03,960 --> 01:01:07,920 stage. I mean we kind of pointed out 964 01:01:07,920 --> 01:01:11,720 like these that even for you kind of like OK, using smart 965 01:01:11,720 --> 01:01:17,120 contracts, the way you do structured products in crypto is 966 01:01:17,120 --> 01:01:20,040 different from the way Deutsche Bank would do structured 967 01:01:20,040 --> 01:01:23,040 products with its clients and you're using smart contracts 968 01:01:23,320 --> 01:01:27,520 underneath. What are other such differences 969 01:01:27,520 --> 01:01:34,320 that that exist in your, in, in your industry in like the side 970 01:01:34,320 --> 01:01:37,960 of it and the crypto side of it? Like, are there other large 971 01:01:37,960 --> 01:01:39,880 differences in the operating environment? 972 01:01:41,840 --> 01:01:45,360 I think the the business model is essentially the same, right. 973 01:01:45,360 --> 01:01:48,520 The business model and then also in terms of financial products 974 01:01:49,000 --> 01:01:53,000 are also similar. We do have a few like crypto 975 01:01:53,000 --> 01:01:56,000 specific crypto specific products like the AL protection 976 01:01:56,000 --> 01:02:02,920 for example, but the overall largely they are the same in 977 01:02:02,920 --> 01:02:05,880 terms of pricing. Quantitative models I would say 978 01:02:05,880 --> 01:02:10,360 is also quite similar. The difference is here we try to 979 01:02:10,360 --> 01:02:15,000 combine the best practice of financial industry and what's 980 01:02:15,000 --> 01:02:19,880 crypto blockchain has to offer. For example, in traditional 981 01:02:19,880 --> 01:02:25,520 finance things settle T + 2, SO two days later, right? 982 01:02:25,840 --> 01:02:28,360 But in crypto like you can settle anytime. 983 01:02:28,360 --> 01:02:31,360 So we for example, for all our clients and counterparties, we 984 01:02:31,360 --> 01:02:34,640 settle almost instantaneously, right? 985 01:02:34,640 --> 01:02:39,960 So, and then we also have this, the margin system, the 986 01:02:39,960 --> 01:02:43,000 collateral system that runs 24/7 because the crypto market is 987 01:02:43,000 --> 01:02:46,720 24/7. So that actually greatly reduced 988 01:02:46,720 --> 01:02:50,320 the counterparty risk as well because in traditional finance 989 01:02:50,960 --> 01:02:53,600 you send the margin call, you have to wait the next day or 990 01:02:53,600 --> 01:02:56,840 sometimes and then you wait another two days for them to 991 01:02:56,840 --> 01:03:00,520 send the Fiat currency through the banking system to hit your 992 01:03:00,520 --> 01:03:03,160 account. So you actually exposed for like 993 01:03:03,200 --> 01:03:08,120 2 days or or or more, whereas here we do it instantaneously, 994 01:03:08,400 --> 01:03:11,960 we send the, we send the valuation or margin report 995 01:03:13,200 --> 01:03:16,080 immediately and then we can actually exchange the culture 996 01:03:16,080 --> 01:03:17,880 immediately. So that actually reduced the 997 01:03:17,880 --> 01:03:21,640 counterparty risk a lot something that something for 998 01:03:21,640 --> 01:03:25,600 traditional finance to actually also follow I think in the in 999 01:03:25,600 --> 01:03:29,120 the in the future, right. And then you mentioned smart 1000 01:03:29,120 --> 01:03:32,120 contract, we also use some of the smart contract solutions to 1001 01:03:32,120 --> 01:03:36,120 manage collateral for example. And then I think what is most, I 1002 01:03:36,120 --> 01:03:39,280 think if we you're asking about the difference fundamental 1003 01:03:39,280 --> 01:03:45,480 difference I think in crypto in in in traditional banks, we 1004 01:03:45,480 --> 01:03:49,880 emphasize a lot on risk cultures, compliance and ethics. 1005 01:03:50,440 --> 01:03:53,920 I still think this is quite important like we saw how many 1006 01:03:54,280 --> 01:03:57,760 things went wrong in crypto over the last two years and how many 1007 01:03:57,760 --> 01:04:02,680 people went to jail, right. So I think what is really good 1008 01:04:02,680 --> 01:04:06,440 at investment banks is really emphasize these things we have 1009 01:04:06,440 --> 01:04:08,520 like compliance training every other week. 1010 01:04:08,920 --> 01:04:12,000 So this is kind of after working traditionally for over like 14 1011 01:04:12,000 --> 01:04:14,800 years, I have this like in my genes already. 1012 01:04:14,800 --> 01:04:16,640 So we actually really focus on this. 1013 01:04:17,040 --> 01:04:18,840 I think it's good, it's good in the long term. 1014 01:04:18,840 --> 01:04:22,720 We've seen that the the the industry is changing slowly 1015 01:04:22,720 --> 01:04:25,840 towards this. People are becoming more aware 1016 01:04:25,840 --> 01:04:31,040 of compliance and risks and and ethics, so I think that's some 1017 01:04:31,040 --> 01:04:33,120 encouraging changes that we have seen. 1018 01:04:34,960 --> 01:04:40,080 So beyond orbit any other interesting start-ups or 1019 01:04:40,400 --> 01:04:45,920 projects in the in the structure products or yeah, derivative 1020 01:04:45,920 --> 01:04:51,600 space in in the crypto industry? Well, I I I can't really speak a 1021 01:04:51,600 --> 01:04:55,680 lot about like other outside options or structure 1022 01:04:55,680 --> 01:04:58,480 derivatives. So focusing on this, I think 1023 01:04:58,920 --> 01:05:03,440 it's good that a lot of exchanges are promoting outgoing 1024 01:05:03,440 --> 01:05:06,560 options. So initially we've seen there 1025 01:05:06,560 --> 01:05:10,600 was there's only like BKCI if banned options for very long 1026 01:05:10,600 --> 01:05:15,600 time and now many exchanges new and the existing exchanges are 1027 01:05:15,880 --> 01:05:18,680 launching outgoing options. I think that's very good because 1028 01:05:18,680 --> 01:05:22,400 we've definitely seen a lot of interest in outgoing options. 1029 01:05:22,400 --> 01:05:25,640 We've also seen exchanges launching structure products as 1030 01:05:25,640 --> 01:05:27,800 well. So it's all very encouraging. 1031 01:05:28,040 --> 01:05:31,560 I think it's great that people push, promote these products 1032 01:05:31,560 --> 01:05:35,480 together. It's a big pie in just we just 1033 01:05:35,480 --> 01:05:40,560 grow the pie, the size of the pie bigger and and then there 1034 01:05:40,680 --> 01:05:42,320 there will be plenty of opportunities. 1035 01:05:42,400 --> 01:05:44,280 Yeah. So if you look at for example, 1036 01:05:44,280 --> 01:05:48,760 the trading volume, spot and perps and futures have all 1037 01:05:48,960 --> 01:05:51,400 shrunk over the last two years from the peak. 1038 01:05:51,920 --> 01:05:55,680 Whereas the only the option market is like the the only that 1039 01:05:55,840 --> 01:06:01,400 bright spot and the the volume keeps going up, which shouldn't 1040 01:06:01,400 --> 01:06:05,000 come as a surprise because this is just exactly the same path as 1041 01:06:05,440 --> 01:06:09,360 traditional markets took. Cool. 1042 01:06:10,280 --> 01:06:11,960 Yeah, it was great to talk to you Jimmy. 1043 01:06:12,560 --> 01:06:14,680 Any last comments? Or would you like to tell your 1044 01:06:14,920 --> 01:06:18,680 listeners like how they could find you if if they are 1045 01:06:18,680 --> 01:06:21,600 interested? Yeah, sure. 1046 01:06:21,600 --> 01:06:26,440 I think if you can just maybe add add a link to our website or 1047 01:06:26,520 --> 01:06:30,600 our, our, our yeah Telegram group something after this and 1048 01:06:30,600 --> 01:06:35,120 yeah happy to share more like about options and then I think 1049 01:06:35,640 --> 01:06:38,920 this is still the early stage of this option markets in crypto, 1050 01:06:39,320 --> 01:06:40,560 yeah. Cool. 1051 01:06:40,560 --> 01:06:44,120 And wishing you loads of success in hopefully a bull market to 1052 01:06:44,120 --> 01:06:45,960 come. Thank you very much. 1053 01:06:48,120 --> 01:06:49,840 Thank you for joining us on this week's episode. 1054 01:06:50,400 --> 01:06:51,840 We release new episodes every week. 1055 01:06:52,480 --> 01:06:55,240 You can find and subscribe to the show on iTunes, Spotify, 1056 01:06:55,280 --> 01:06:58,280 YouTube, SoundCloud, or wherever you listen to podcasts. 1057 01:06:58,720 --> 01:07:01,440 And if you have a Google Home or Alexa device, you can tell it. 1058 01:07:01,440 --> 01:07:04,480 To listen to the latest episode of the Epicenter podcast, go to 1059 01:07:04,480 --> 01:07:07,680 epicenter.tv/subscribe for a full list of places where you 1060 01:07:07,680 --> 01:07:09,880 can watch and listen. And while you're there, be sure 1061 01:07:09,880 --> 01:07:12,360 to sign up for the newsletter so you get new episodes in your 1062 01:07:12,360 --> 01:07:15,440 inbox as they're released. If you want to interact with us 1063 01:07:15,800 --> 01:07:18,160 guest or other podcast listeners, you can follow us on 1064 01:07:18,160 --> 01:07:20,320 Twitter and please leave us a review on iTunes. 1065 01:07:20,560 --> 01:07:22,880 It helps people find the show and we're always happy to read 1066 01:07:22,880 --> 01:07:25,240 them. So thanks so much and we look 1067 01:07:25,240 --> 01:07:26,400 forward to being back next week.