#386: Richard Byworth on Becoming Public Market Crypto Exchange

Richard Byworth is the CEO at Diginex based in Hong Kong. Previously he was Managing Director at Nomura where he ran Multistrategy Sales for Asia Pacific product globally. In this conversation, we discuss Diginex, their Nasdaq listing, the SPAC structure, various products they have built, and Richard's time at Nomura. ============================== Diginex is the first company with a cryptocurrency exchange to be listed in the US. That exchange, EQUOS, has been built to institutional standards, but is available to everyone. You can trade Bitcoin and Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees, by signing up using equos.com/pomp ============================== Athletic Greens is an all-in-one daily drink to support better health and peak performance. Even with a balanced diet, it’s difficult to cover all of your nutritional bases. That’s where Athletic Greens will help. Their daily drink is like nutritional insurance for your body that’s delivered straight to your door. You can get yours at https://athleticgreens.com/pomp ============================== Pomp writes a daily letter to over 50,000 investors about business, technology, and finance. He breaks down complex topics into easy to understand language, while sharing opinions on various aspects of each industry. You can subscribe at https://www.pompletter.com

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Anthony Pompliano?

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to the Pomp Podcast, simply the best podcast out there. Let's kick this thing off. Richard Byworth is the CEO at Digenex based in Hong Kong. Previously, he was Managing Director at Nomura, where he ran multi-strategy sales for Asia-Pacific product globally. In this conversation, we discuss Digenex, their NASDAQ listing, the SPAC structure, various products they have built, and Richard's time at Nomura. I really enjoyed this conversation, and I hope you do as well. Before we get into the episode though, I want to quickly talk about our sponsors. First up is Digenex.

• 0:42Anthony Pompliano?

  They're the first company with a cryptocurrency exchange to be listed in the US. That exchange, Equos, has been built to institutional standards, but it's available to everyone. You can trade Bitcoin in Ethereum spot, as well as Bitcoin perpetuals, and get a 5% discount on all fees by signing up using equos.com/pomp. Go check them out. They're going to be the first company with a crypto exchange listed publicly in the US. Digenex, you can go to equos, E-Q-U-O-S, equos.com/pomp. Go check them out. Next up is Athletic Greens. If you're like me and you're really pushing hard at multiple areas of your life, you may not be eating the most balanced diet, then you probably want some extra nutritional support

• 1:24Anthony Pompliano?

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• 2:10Anthony Pompliano?

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• 2:50Anthony Pompliano?

  special offer. That is athleticgreens.com/pomp. Lastly, don't forget that I read a daily letter to over 50,000 investors about business, technology and finance. I break down complex topics into easy to understand language while sharing my personal opinion on various aspects of each industry. You can subscribe at pompletter.com. Again, pompletter.com. All right, that's it for the advertisements. Let's get into this episode with Richard. I hope you guys enjoy this one.

• 3:19Speaker 01

  Anthony Pompliano is a partner at Morgan Creek Digital. All opinions expressed by Pomp or his guests on this podcast are solely their opinions and do not reflect the opinions of Morgan Creek Digital or Morgan Creek Capital Management. You should not treat any opinion expressed by Pomp as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of his opinion. This podcast is for informational purposes only.

• 3:44Anthony Pompliano?

  All right, guys. Bang, bang. I am super excited to have Richard here. You've got lots of stuff going on, man. Thank you so much for taking the time to do this.

• 3:54Speaker 02

  Thanks for having me on, Pomp. It's great to be here.

• 3:58Anthony Pompliano?

  Absolutely. Let's just jump right in on background. You now run what I think has become kind of one of the most noteworthy crypto exchanges, but before that you had a whole other life in like the legacy finance world. And so you cut your teeth there. Talk a little bit just about, you know, what you did, where you grew up, and then how did you eventually get into crypto?

• 4:21Speaker 02

  Yeah, so I grew up in traditional finance, as you said, mainly in the derivative product set. So I was derivatives and convertible bonds. I was a started off as effectively a prop trader in London, so running bank risk and then moved that into flow and then slowly moved into market making and trading around that. And then I moved out into Tokyo to run distribution for Nomura. We were selling convertible bonds and then that was around the time that Lehman got acquired by Nomura. So we brought Lehman into the fold. Lehman came with a lot of derivative products and so just added that to what we were doing.

• 5:02Speaker 02

  Then we renamed the group Multi-Strategy Sales. So by the end of my career with Nomura, I was running derivatives, convertible bonds, futures and options, Delta One, sort of everything in the derivative space for distribution across Asia product, but across the world.

• 5:19Anthony Pompliano?

  Got it. And so there are a number of deals that you worked on that are, you know, years ago, but still I think people kind of look and say, wow, that was kind of a seminal moment. One of those was this SoftBank convertible bond. Talk a little bit about kind of just how that deal came together, you know, and kind of your experience in actually running a lot of the distribution for it.

• 5:43Speaker 02

  Yeah, so that was actually a really challenging deal because you couldn't get credit for SoftBank at that point in time. And so credit is a big part of the pricing of a convertible bond. And so our bankers had actually gone ahead with the pricing and just put a random credit number in there, assuming that there was a credit market. So we then had a situation at the last hour where there was no credit and we had to effectively get the credit desk to help us out and make some sort of a market. But it was a it was a big deal. It was 1.5 billion US, came with an equity tranche as well, but this was a

• 6:23Speaker 02

  convertible bond. So yeah, it was one of the most hectic deals I've ever run. But yeah, it was good fun. And obviously, as you say, SoftBank, huge name, very important these days and particularly in what they've been doing in Nasdaq of late.

• 6:37Anthony Pompliano?

  Yeah. And what's so interesting to me, I think, about a deal like that is, you know, most people are saying, oh, SoftBank today, right? But it was still a big deal then. And if this was in the early 2000s, this was kind of after they had had this like meteoric rise and then kind of the suffering of pain during the the dot com bust as well, right?

• 6:58Speaker 02

  Yeah. Well, actually, if you look up Masasong's Wikipedia page, he's the person who's lost like the most money ever and then made it all back again. So yeah, he's he's a he's a legend, obviously, in Tokyo. And, you know, when I was there, he he bought all of Vodafone Japan and then pivoted SoftBank into a telecom company. So yeah, it's a it's a very special company. It's been around for a long time, been doing very aggressive things, made a load of money with the internet and now doing it again in tech in size.

• 7:30Anthony Pompliano?

  Absolutely. And talk a little bit, kind of, how did you go from that, which is pretty traditional and obviously a great business, but but just has nothing to do with crypto or tech, really, to today, running, you know, what is turning into like this holding company or conglomerate of different digital asset related products and services? Like, when did you first see Bitcoin or crypto? And kind of what what pulled you down the rabbit hole, if you will?

• 8:00Speaker 02

  But actually, when I first saw it, it was it was in 2009. I had two kids from Lehman on my desk, and they were just always talking about Bitcoin. I was like, guys, just sell some derivatives, for God's sake. And they were, you know, just talking about Bitcoin. I was like, why are you talking about this stupid into their money? Like, it's a scam, clearly, you know, there's there's nothing to be done here. Well, those two kids have retired now, so they're in a different situation. But yeah, I didn't hear about Bitcoin again until all the way until 2017. I read the book Sapiens. And I've been really focused on hedging or protecting wealth against what I was seeing

• 8:42Speaker 02

  happening in response to the global financial crisis around printing of money.

• 8:48Speaker 02

  I was very, very concerned about what this was doing and you could just see it damaging everything in terms of everything in this sort of high end space. So sort of education, you know, holidays, medical, everything that was sort of supply constrained was just going up in price to a ridiculous degree. Even if CPI was staying fairly stable because of obviously now everything that we were seeing in tech and also demographic change as well. And so, yeah, it just really became an obsession of mine. A lot of people on the desk were buying a lot of gold. I was buying gold. And then I read the book Sapiens at the beginning of 2017.

• 9:30Speaker 02

  And Yuval is talking a lot about Bitcoin and blockchain and how it has the capacity to change the way that we think about money. And, you know, this is all built on his beliefs around, you know, money being a belief system and much of society being a belief system. And so I started looking into it and then I actually invested in this company, Digenex, which back then was a cryptocurrency mining company. So with GPU mining, they were mining Ethereum. And yeah, I became an investor and then when I left banking, the founder asked me to come and help him build the company further.

• 10:11Speaker 02

  And I was like, I don't know what you're going to need me for to build a mining company. He's like, no, no, no, you don't understand. I think there is a huge opportunity around disrupting traditional finance with this tech. And so then I obviously caught my attention. We sat down, we talked about it, thrashed it out, sort of built the strategy for what is Digenex today, which is, you know, a full ecosystem, as you say, a conglomerate around this space that covers everything from exchange, from trading to custody to asset management and actually its own investment bank.

• 10:46Anthony Pompliano?

  Got it. And so as you think through kind of where you sit today, let's just start at a high 10,000 foot view of there's so many different products and services that you could go into. Maybe give us an overview of like, what are you guys doing? And then talk about kind of the why, like, why are you pursuing those versus, you know, the hundreds of other things that you could be doing with your time, money and resources?

• 11:11Speaker 02

  Sure, absolutely. I mean, I think, you know, a lot of what we're about is, you know, you have a very similar philosophy. It's about making the migration from institutional investors into this technology and asset class. And I think when you think about that, and the way that these institutions are set up, the starting point always is going to be custody, right? You need to have a custody that can be trusted, it can be secure, and it's viable. Right now, you know, there hasn't been a major hack for such a long time that people are just not that concerned about custody, but institutions always will be. And so we had a look at a lot of the custody offerings on the street, and we actually acquired

• 11:55Speaker 02

  one. But then we just got to the point where like, look, there, there's nothing that we really can rely on to the degree that we need. So we hired a team that's led by an ex Ministry of Defense security specialist. And they they built out what today is digital, and one of the most secure and solid offerings on the street. I often describe the cold custody as as below freezing, because it's just, you know, it's actually operated out of global vaults of the vault provider Malka emit. So you can you can set up a vault anywhere in the world, and specify that's where you want your your keys kept. So that's sort of

• 12:40Speaker 02

  the foundation and the sort of where everything else is able to be built from.

• 12:46Speaker 02

  At the centre of it all is our exchange, Equos. So Equos is really focused, and you know, there are loads of exchanges out there, so why have another one? And I think the big important point here is that we've built differentiated product in the fact that we have infrastructure that is able to accommodate these institutions that are coming in. I'll give you a basic example. Right now, you log on to any exchange, even if you go with the pro version or the institutional version, you get one login for your account, right? That's non manageable for an institution when they come in. They need to have segregation of duty. They need to have their ops team, their trading team, their compliance team, their audit team,

• 13:29Speaker 02

  all to have different access and different ways that they can access that account. And so that's basic stuff, and it's stuff that we've built into the framework of Equos to allow that first step of institutions to come in. Another thing is managed accounts. So think about the asset management industry in this space at the moment. It's quite nascent, right? Many of the asset managers, and we have an asset manager that we speak to, because we're a fund of funds. They don't understand that they need to have separate custody to be investable by institutions, right? They don't understand how they should be marking their books. They've got ICOs still marked at 2017 prices because they've never traded.

• 14:12Speaker 02

  You know, so they, like, there's a lot wrong with the way that current asset management landscape works. And so we built a fund of fund really to help develop that. But also, when you think about that in the context of the exchange, actually provide a service to those funds of managed account functionality like we see in traditional finance. So you know, your New York pension fund that you got to come into Bitcoin, you get them to go and allocate to a strategy within that, but say, okay, you can run it through a regulated platform where you know your assets are safe. You know, if they drift off mandate, that you can pull them off it. And actually, you can, you can really have proper control over that strategy,

• 14:54Speaker 02

  much like we do in the, in the hedge fund industry today, post 2008. Now, a lot, a lot of the allocations are made by managed accounts through prime brokers. So the exchange is really designed to give that institutional capacity to really grow this industry and really grow the asset management industry as well. But then when we think about retail, I mean, because it's not just an institutional platform. It's about making sure that we can have everyone participate. So obviously for retail, we want to make sure that people are looked after fairly. A lot of, you know, the experience that people have on some of these platforms is that they now they get ripped off or their fees are too high or they get the liquidations happening

• 15:37Speaker 02

  of some of the levered products and, you know, very, very much against them. And so, you know, everything that we've designed is about making sure that we're fair, we're transparent, and obviously that we've got that product innovation that really allows people to, to, to manage their portfolios in a way that, that this, this technology allows. Because you, you know, you look at everything that we've got, we've got, you've got Bitcoin as an asset, right? You, you can just sit it in your cold custodian, or you can start to trade derivatives around that position to maximize the value within the portfolio. But you can also lend it as well as collateral and actually receive fees for it.

• 16:18Speaker 02

  So actually, it's starting to take finance into your own hands and be able to really build around that core collateral of Bitcoin with other products. And that's the longer term vision of what we're doing at Equus, putting it all together, where you've got a really nice ecosystem to allow you to really manage your assets properly.

• 16:40Anthony Pompliano?

  So this starts to look very similar to what the traditional world did with fiat currency based assets, right? And it almost feels like what you're trying to do and doing pretty well is recreating all of the things that we know that work in the traditional world in terms of a product suite and kind of how those interact with each other. Now just redoing it for digital assets. Do you think that's a fair categorization? And maybe talk a little bit about, there are a couple of wrinkles or changes there, but in kind of how you decide, when do you follow the traditional playbook versus when do you kind of, you know, quote, quote, go rogue and create a new crypto way to do something?

• 17:18Speaker 02

  Yeah, look, it's, yeah, it's very valid and we are looking at everything that we've learned from traditional finance and bringing it to this industry to help really grow the industry and make it properly adopted. So, for example, derivatives. So derivatives are a huge focus of us. I'm a derivative guy, the original founder's a derivative guy, our chairman's a derivative guy. I mean, everybody within the senior part of the management of the organization on the product side is a derivative guy. So, we're very focused on effectively building that out, allowing the options market to really grow. And then when

• 17:57Speaker 02

  you have, as you know, a full options market of every strike and every maturity, then you can start to build things like fixed products. Suddenly, the whole thing becomes a lot more hedgeable, then you can start to build things like variance and structured products and all these types of things. Structured products obviously feeds the volatility into the market, and then you've got all these products that institutions want to play with, right, and want to be able to manage their portfolio risk around. So for us, derivatives is a very core part of, as you say, bringing that institutional level of finance into this industry and going, okay, we started with that perpetual product, everything else is quite nascent,

• 18:38Speaker 02

  and we really need to start to grow it out to allow this industry to hit the sort of numbers that we see in traditional finance. Right now, the spot market of crypto is, I don't know, it's $4 billion a day that it trades, and then you've got derivatives is another 12 to 14, depending on the day. So on a good day, you can have a 20 billion market, but derivatives is only really three, four times the market. But in traditional FX, you know, derivatives is over 100 times the spot market. So the capacity for growth there is enormous, and we're right at the beginning. And obviously, derivatives have grown quite significantly over the last couple of years. But we really think that's going to continue,

• 19:20Speaker 02

  and that's really where we focus the opportunity set now for the business. But then the other part is our investment bank itself, and that's more down the line. So we've taken a slightly different approach to many of the other guys that are offering digital securities in this space, or security tokens, as they're called. And rather than enforce on investors that they take a digital security, because that immediately wipes out like 95% of any institutional investor, because they're just not going to get it through risk or product committee, is we actually deliver our assets in paper form with the option, when they're ready, to take it in digital.

• 20:03Speaker 02

  So they can flip it into a digital security in the future. And obviously, that's helpful to us as well, because we don't have the correct licensing at this point for the exchange to allow us to list securities. And we don't yet have the correct license for the custodian either, although we do have all the infrastructure there already around the different standards of Ethereum that we're seeing the majority of these tokens being built on. But yeah, it's about licensing. So a big drawback always is the pace of regulation around this. So yeah, those are probably the two key areas, is the derivative market and then the digital security market.

• 20:43Anthony Pompliano?

  And so when you think of that digital security market, you know, I am one of many people who believe that that is going to be very, very large, right? I think that a lot of people, including myself, thought that that was going to be kind of on the equity side first. So this idea of like every stock, bond, currency, commodity will eventually be digitized, we'll start on the equity side. It feels like actually where a lot of that is starting is on the debt side, right? So we've seen all kinds of different debt issuances on Ethereum. We're big investors in a company called Figure that has figured out how to do this. It's kind of a digital, you know, kind of DTCC. But the equity side hasn't really taken off yet. And so kind of maybe talk a little bit about why that may be?

• 21:28Anthony Pompliano?

  And then, you know, is that buying you guys extra time to kind of really get in position to capitalize when it happens? Or kind of how you're thinking about your positioning in the market as these digital securities kind of, you know, fulfill the promise that we've kind of talked about for two years or so?

• 21:45Speaker 02

  Yeah, I think you've got very large private credit markets, right? It's the private markets that are the most impacted by this because suddenly you've got a technology that can make it much more transactable. You can embed documentation into the asset itself, which, you know, when you're dealing with a private asset, there's not so much transparency always around the documentation that you're dealing with. Now, equities is slightly different. You know, we have public equity markets and the private equity markets are quite robust at the moment. We talk about SoftBank, obviously huge checks flying around and a lot of liquidity in those markets. So I think it's really on the outer edges where liquidity suffers somewhat.

• 22:30Speaker 02

  We're seeing the most impact. So fixed income and private credit is obviously, it's a little bit of an easier avenue. We're actually most focused on securitizations. So we actually are looking at securitization of a private equity fund, the LP of that fund. And we've been working on a number of property transactions. So, you know, when you hear about tokenizations of buildings, they're effectively a securitization, right? So our investment bank is a securitization advisory firm. And so I guess where we differ to the majority of other folks out there, not to figure, I mean, that's obviously a different product altogether.

• 23:15Speaker 02

  But, you know, majority of the platforms are really about delivering the technology and just allowing you to issue that token, whereas we provide the full front to back. So from right to the advisory, how do I structure this? Through to the actual delivery of the security, which as I said, you know, we deliver majority of times in paper form at this point, but we expect more and more to see that delivered in digital.

• 23:41Anthony Pompliano?

  It's almost like you end up just building the muscle memory of doing the securitizations. Today you use the kind of more traditional technology, but over time you'll convert that to the digital technology, right?

• 23:52Speaker 02

  Yeah, I think it's really hard to say, go jump in that pond. It's a different experience altogether to an investment manager. You go to a Japanese pension fund and you say, why don't you guys invest in a digital security? And they're going to be like, what's a digital security? They're like, well, blockchain. Okay, I've heard of Bitcoin, what's a blockchain? Okay, so you can explain and then what standard? And then, well, how do I book this? And how do I custody it? And where does it trade? And it just becomes too hard. So you're not going to get to that point immediately. And I think that's a mistake that a lot of people make is that they get sort of over enthusiastic about what the technology can do and how it's going to change everything.

• 24:38Speaker 02

  But it's an iterative process and you have to build to that point because you're dealing with people that are in very traditional frameworks, have to go through a risk committee, have to get it through their IC. So make it as easy as possible. Give them the option down the line when they can actually get to the point saying, oh, hang on, we bought that paper security off the DigiNex guys two years ago. Maybe we could use that to experiment with this technology. And then slowly, slowly, you're building a base of people that can adopt it quicker in the future.

• 25:10Anthony Pompliano?

  Yeah, it makes a lot of sense. You are not standing still as you guys are building this business from a capital market standpoint. You recently raised a private round about $20 million. And then you are going through this SPAC transaction, getting into a NASDAQ listing. Talk a little bit just how you thought about capitalizing the business and why some of these decisions over the last kind of, you know, three to six months or so.

• 25:39Speaker 02

  Yeah, sure. I mean, look, we raised the private round because with everything that was going on with COVID, nothing was sure.

• 25:47Speaker 02

  So we were just like, look, we'd better just make sure that we've got at least an initial base for what we need to keep getting to the point where we can deliver everything. But, you know, we always had our eye on that NASDAQ listing. For us, it was essential for the industry and for ourselves to give that additional layer of trust and credibility. When you're walking into a room and talking about this technology, I'm sure you've had it many times. We were just like, yeah, I can't look at that. But when you're coming at it from a NASDAQ listed company's perspective, okay, hang on a minute. I want to maybe want to pay a bit more attention. The other thing is about the credibility of the exchange as well.

• 26:33Speaker 02

  I had a lot of commentary from people that wanted to invest in Bitcoin, but have heard these horror stories about Quadriga or exchange hacks or whatever. And it's just like, I've never felt comfortable sending money to one of these places. Now, finally, there's, you know, there's a company that's going to be a NASDAQ listed exchange that I can send my money to and have that level of comfort that they're not going to just disappear and pretend they're dead or whatever that guy did.

• 27:02Anthony Pompliano?

  Absolutely. And in terms of the public markets, it feels like there's just not that many kind of ways to get exposure to digital assets, right? So you've got maybe kind of a Square, which is doing a lot of Bitcoin, facilitating Bitcoin purchases. You've got now the kind of micro strategy who's actually holding Bitcoin. Maybe there's some others that are kind of tangentially related, but there's not really kind of, hey, that is a digital asset ticker that I can buy that is pure exposure to that, right? Maybe you have some mining stocks or whatever, but nothing that's kind of a dead on exposure. Walk me through kind of the logic between what you think the impact of you guys getting into the public market in that manner is going to be?

• 27:47Anthony Pompliano?

  And then two is the advantage or disadvantage, kind of pros and cons of being the first versus maybe wanting to be, you know, fast follower number two or three and let somebody else be the first.

• 27:58Speaker 02

  Yeah, look, for us, it was always just about making sure that we got there. And so we never anticipated that we'd be the first. We figured that many, many people would be trying to do this because, I mean, let's be honest, the industry has suffered from credibility issues for quite some time. And so, you know, if we want to make this institutional, then we have to be able to give someone that sort of element of trust where we go, okay, now this is a company that's, you know, passed NASDAQ listing requirements, SEC approved, you know, that's a, it's a proper organization. I think to your point around having a proper play into this space in the public markets is, is also really important.

• 28:42Speaker 02

  You've got, obviously, like you mentioned, micro strategy, but I met an ETF guy who's, he's got a blockchain ETF, met him back in March in New York. And he said, I'm having a nightmare allocating this fund. You know, I'm allocating to Facebook because they might do Libra, or I'm allocating to IBM because they got Hyperledger. It's like, this is, you know, I need a proper pure play.

• 29:09Speaker 02

  So, you know, we're obviously the picks and shovels to the industry. You've got people like Grayscale that, that have these, these tracker funds directly into the asset, but we're everything around it with the ecosystem play. And I think that's, like you say, it's, it's quite differentiated anyway as a business model, but being able to play it by the public markets, I think, is, is, is quite an opportunity.

• 29:34Anthony Pompliano?

  Got it. And so you're obviously going to now be in this new position of publicly traded, you've got capital on the balance sheet. Where does the focus go now? Is it just more of the same and kind of go faster and further? Is there new things that are kind of on the horizon from a product and kind of services standpoint? Like, how do you think about moving forward?

• 29:55Speaker 02

  Yeah, we've, we've always got big goals in terms of what we're doing. The next phase for our custodian, for example, is to implement borrowing and lending facility. We want to make sure that people can have that within the exchange so that they can go back and forth. You know, have it in super cold, but then maybe write a swap short to effectively be able to, to, to provide some sort of derivative trade or, or lend it out.

• 30:21Speaker 02

  The exchange itself is always pushing forward with new product innovation. I've obviously talked about that roadmap for derivatives. And we've just, we've just moved ahead with our investment product business, which will be the start of having listed vehicles and, and notes issued out of Europe for traditional stock exchanges and, and other exchanges where we'll start to build the structured products flow. Effectively you get that derivative flow coming into the exchange. The other thing is I mentioned the, the asset management side of things really. Once you start to get that traction, that, that takes time, but building that out, building reputation in the space for,

• 31:03Speaker 02

  for having assets, I mean, that's something that can grow very exponentially. And then obviously quietly in the background, running the securitization business, that'll continue.

• 31:13Anthony Pompliano?

  Yeah. And how do you think about a balance sheet? One of the things I've seen with a lot of companies, both in the public and private markets who are interested or, or touched this is you've got kind of fiat currencies and then there's this, you know, digital asset. And some people are religious about, let me convert Bitcoin, Ether, or whatever it is into cash as soon as possible. It's easier to, for accounting, all of those things. Other people are converting from cash to, to crypto, as we see with MicroStrategy. Where do you guys sit in terms of kind of managing your balance sheet? How do you think about, you know, maybe not exact numbers, but just like theoretically, the balance between that cash and, and digital assets?

• 31:56Speaker 02

  Yeah, for us, you know, I mean, it's obviously we're moving very, very fast, you've said. So in terms of the focus on managing that balance sheet to that it's not at a degree where it's significant enough where someone like a MicroStrategy or even an Apple sitting on a cash pile of that degree, they have to think very carefully about their inflation hedge. And more and more, we're having people in the organization that want to be paid in cryptocurrencies. So yeah, we have to manage that, obviously, from a treasury perspective. But yeah, I can tell you that it's been the subject of many conversations, particularly expedited by our friends at MicroStrategy.

• 32:36Anthony Pompliano?

  Got it. And then in terms of zooming out from just DigiNex into the crypto community industry, what areas are you kind of paying attention to? Are there things that maybe are not getting as much, you know, airtime that you think should be? Or are there things that maybe are overhyped that you say, hey, you know what, we're actually not as excited as maybe other people are? Like, how do you just think through other things that are going on?

• 33:05Speaker 02

  Yeah, I think, obviously, DeFi is the big sort of phase at the moment that everyone's getting very excited about. And I do believe that DeFi is the future, potentially down the road, of the way things start to evolve. But it is, it's very early. It's like trying to fly to the moon in a cardboard box. I mean, you're going to get yourself into trouble along the way and, you know, things are going to break and burn up, as we've already started to see. So, yeah, I definitely have concerns about what that does for us on a reputational basis for the industry as a whole.

• 33:45Speaker 02

  And I definitely look back to 2017, and it's like, this DeFi thing is probably not what we need right now. You know, we've got MicroStrategy coming in, we've got Paul Tudor Jones coming in, we've got some really serious hitters starting to pay attention to this industry. And I just, I just hope that DeFi doesn't become another ICO craze, that people go, you know what, everyone's crazy in crypto, and stay away from it for another few years.

• 34:17Anthony Pompliano?

  I'm assuming that you are also thinking that we are kind of in the early days of another bull market. Correct me if I'm wrong on that, but also, how does that play into you guys being listed, some of these other kind of non Bitcoin type, you know, areas that people are focused on? Is this a kind of all boats rise together? Do you think that there is that, that, you know, everyone waiting for the decoupling? Is there a flipping? I feel like there's all these, you know, kind of theories as to what plays out, you know, where in your mind, do some of these things end up?

• 34:52Speaker 02

  Well, you know, I'm a big Bitcoin bull. I mean, the reason I got into this industry in the first place was because I was looking at inflation hedge. And so I'm a big, big believer in Bitcoin. I think we're going to see a massive rally and it's coming very soon. I often say to people, right now, it's a coiled spring and it's just coiling tighter and tighter and tighter and it is just going to explode to the upside very, very soon. That said, to your question about, you know, the high tide rising all boats, I think definitely. The debate, I was at a debate with

• 35:32Speaker 02

  a lot of people in the industry in Hong Kong, a few months ago, and there was one, one, one person there saying that there's no way that we're going to make the same, we're going to see people make the same mistakes that we saw in the ICO craze and it's just going to be Bitcoin and everything's, everything else is just going to stay, stay down. I was like, that's just not factual. I mean, there's so many new people coming into this industry, so many people that don't understand what Bitcoin is, that look at it and go, okay, what's the next one? And we see it, we saw it in 2017 and I'm getting that question all the time. Like Bitcoin's too expensive, I don't want to buy it. I want to buy the one that's going to do a thousand X. And it's just

• 36:13Speaker 02

  the nature of the whole game theory, the way Satoshi planned it, is that greed is what effectively will help with the adoption because when you get that cut in supply to the degree we do every four years. Then that's just gonna squeeze the price very, very hard. And so then you get that sort of game theory element and greed sort of number go up theory around propagating the the success of Bitcoin. But but what happens around the edge is everyone's like, well, there's got to be another one that's gonna be better than Bitcoin because Bitcoin is the old one. I'm sure you've heard this a hundred times, right? And I get it. I'm like, no, no, you, you, you've got to buy some Bitcoin. Sure, have, have a little portfolio to muck around with.

• 36:58Speaker 02

  But, you know, your main investment is Bitcoin.

• 37:01Anthony Pompliano?

  I, I joke all the time and I tell people, uh, sometimes the simplest trade or the, the best trade is the simplest trade. But on top of that, uh, humans want to gamble, right? Like that, that is ultimately what it is. And, you know, for everyone who is, you know, intellectually honest, they say the stock market is just a legal casino and that's okay, right? I mean, you know, knock, knock yourselves out. But there is this element of if you want to kind of go play in, you know, the, the crypto casino, uh, to your point, have the major exposure to Bitcoin and then sure, take five or 10% of what you want to put in a crypto and, you know, go bet it on black. You'll win half the time and half the time you won't.

• 37:43Anthony Pompliano?

  And frankly, I think people are just paying for entertainment to some degree rather than, than actually trying to generate a financial return. And that's okay, right? There, there's no problem with that. But, uh, but, but it's pretty funny when you start to think of it that way.

• 37:56Speaker 02

  Yeah, but you know, when we next see Bitcoin go up a thousand percent, people are like, okay, what, what, I've missed it. Where's the next one? And you will have this effect. And because these are all smaller market caps, they will probably outperform to the upside. But, but the tears afterwards are going to be significantly more to the downside. And so when you go through that cycle, as, as we've already seen many times, then, uh, then those, those pointless projects will be, uh, will be exposed fully.

• 38:26Anthony Pompliano?

  Absolutely. Talk a little bit about some of the challenges or, or things that you're thinking about in terms of us getting the business. We've talked a lot about kind of the products and the services and kind of the, the bull case, if you will, for you guys and for crypto. What are the things that kind of keep you up at night and you spend a lot of time just figuring out, you know, how, how do we solve these problems?

• 38:46Speaker 02

  Yeah, look, I mean, we're a very KYC and AML focused exchange. We want to be compliant. We want institutions to know that they're not going to come onto this platform and buy Bitcoin off a money launderer or someone that's been financing terrorism. So we do have strict controls. We do have KYC and AML. And as a result, retail often, you know, run into, uh, run into problems. So we have to be very active in driving that forward. That's one thing that, that I, I work on actively with both the sales team and the marketing team is making sure that we've got that plan really mapped out and making sure that we're always sort of helping retail on an educational basis, understand what they're dealing with,

• 39:30Speaker 02

  but also really making the process a lot easier as much as possible, but adhering to compliance guidelines as well. So that's, that's probably the, the one thing that does keep me awake at night around the platform itself. In terms of, you know, other stuff where we, we've got, I would say probably one of the coolest institutional on-ramps to an ecosystem that I've seen anywhere in the industry is our trading platform. So we have a trading platform called DigiNex Access. And Access effectively allows you to trade on any platform. You've got to have your own login, but it effectively allows you to trade algos and arb's and spreads across different, different platforms.

• 40:12Speaker 02

  But the important thing about this is this plugs into two of the world's largest trading technology providers. FIS, I'm sure you've heard of Fidelity Investment Solutions and Activity. Those two providers alone cover the large majority of the institutional finance space that look at outsourcing their trading technology. We plug into both their portfolio management systems. So anybody from any of those institutions that wants to start to trade crypto gets given access as part of that portfolio management system as their crypto module. So this is huge for us in terms of helping, again, drive adoption.

• 40:56Speaker 02

  But obviously it's a way for us to get, you know, paid for all the flow that's going on in the industry as well as obviously help direct flow into EQOS from these institutions.

• 41:08Anthony Pompliano?

  Got it. Makes a lot of sense. And then talk a little bit about from a talent standpoint. Obviously, you're in Hong Kong now. How have you found the market for talent and building up the team? Is this something where you've been able to kind of convince people from the traditional world to cross over? Are the most of the people that you're finding just coming right out of the crypto world already? Just kind of elaborate on that.

• 41:33Speaker 02

  Yeah, no, sure. So as you probably know, Hong Kong has quite a rich crypto, crypto environment. And yeah, actually, I don't know if you saw it, actually, there was Bitcoin ads that have been put up everywhere around Hong Kong now.

• 41:48Anthony Pompliano?

  Was that you guys? Was that you guys?

• 41:50Speaker 02

  It was actually the Bitcoin, it was the Bitcoin Association.

• 41:53Anthony Pompliano?

  Okay.

• 41:53Speaker 02

  Kudos to them. It was a very high quality move. I loved it. But yeah, there's a big community here and a big focus on the industry. So obviously, we've got that access, but also there's a huge financial services industry and a lot of people that we know from that world that we've been able to pull over. Give you an example. So the guy, the guy we hired to run the investment products business, I told you, we're just launching that now. So that's the sort of way into structured products. As a guy that we knew from, from UBS, ran global structured products for them. UBS is the biggest structured product house in the world, you know, with their private bank and their asset management.

• 42:36Speaker 02

  So, you know, taking their global head of structured products and moving them into this industry is quite a coup for us. But yeah, look, we're, we're a global business, so we hire a lot out of London, Switzerland, as well as Hong Kong. And now we're building into Singapore as well. So actually, with the, with the listing, we're moving the company to be a Hong Kong headquartered company. So that's, that's obviously another huge talent pool around the fintech space. Not so much in crypto as Hong Kong, but yeah, it's, it's obviously also in the traditional finance. One thing I've really found with this industry is, is obviously, you know, my own passion when I'm interviewing people and getting, getting excited about it.

• 43:20Speaker 02

  As I'm sure you, you do when you speak to people about the asset class, but. Even with a much smaller checkbook than I ever had to hire people in investment banking, we're hiring levels of talent way, way above what we were ever able to achieve in banking. So I think this is really just turning the heads of some of the most brilliant minds in traditional finance, as well as obviously, you know, young people that are coming up and looking at traditional finance again, nah, I'm going to go crypto.

• 43:53Anthony Pompliano?

  I tend to think that you are, you're right there, my friend. Help me understand, what would change your mind about all this, right? So, you know, I've started to think more about, I'm, you know, as bullish as anyone. And somebody asked me recently, what would change my mind? And I had a couple of ideas, but what would change your mind when it comes to Bitcoin? And kind of the bull case for crypto in general?

• 44:17Speaker 02

  Yeah, I think Bitcoin, there are two major arguments that have pulled out that do kind of occasionally may make me sit and wonder. And that's obviously a government-sponsored 51% attack.

• 44:36Speaker 02

  And that could only really be achieved by someone with big balance sheet. So let's say the Fed decided, you know, Bitcoin is the only threat to us continuing with this game of fiat money. And, you know, they could go and, you know, amass enough hash power to do a 51% attack and then cause people to lose confidence in Bitcoin. But I just think it's so unlikely. I don't think they're ever going to be able to be considering doing that until it's at such a point where it's too late. And, you know, the value of all that fiat printing is probably not going to be sustainable. And then the other thing is quantum computing.

• 45:22Speaker 02

  A lot of people talk about that. But again, I think. You know, there's, there's so much around quantum computing that is yet to be understood. I think that, you know, even if someone was sitting in their garage, developing a quantum computing to the computer to the degree that it could actually launch and work tomorrow, that nobody knew about. Then the first thing they can do is not attack Bitcoin. They got plenty of other things in their plan and the amount of money they probably spent. Financing that is, is, is going to give them a focus on other things. So yeah, like I, those are the two, two big things.

• 46:06Speaker 02

  How, how would you think about those two particular items? I'm sure they're both things that, that have come across your mind.

• 46:13Anthony Pompliano?

  Yeah, look, I think both of those are valid points. And the only third one that I usually add is if literally everyone just walked away. Right, right to the point of like, there's almost this feeling of, yeah, Bitcoin's price went to zero, like literally zero. Then it's over, right? But even if it dropped, you know, in some weird way to hundreds of dollars from here. I actually think that there's a lot of people who would just be buying it up. Right? And it's kind of this joke of, well, I know that, you know, a government can't buy up all the Bitcoin because they're not buying mine. Right, right? And so, you know, I, I just think that one of the greatest assets of the industry and

• 46:56Anthony Pompliano?

  of kind of Bitcoin specifically is just this community of really strong hands that this is not just a, I hope that the price of an asset goes up. This is a belief in something that is, you know, much, much greater than any financial asset. And I think that that's very rare to have those belief systems kind of tied to something. And that tends to, to lead to kind of outperformance, right? You see it with other kind of stocks where you get almost like cult-like following. I think same thing is playing out here as well.

• 47:31Speaker 02

  Yeah, I mean, it's, did you ever read that book, Sapiens by Yuval Harari?

• 47:36Anthony Pompliano?

  I've read like half of it. So I got this weird thing where I read, I just don't sit down and read like one book at a time. I kind of read a little bit. I moved to another one, whatever. And I probably read about half of it and just got busy with other things, but I enjoyed what I read, but I haven't finished it.

• 47:54Speaker 02

  Yeah, I mean, he goes on about money being a belief system. And obviously, that's what it is. We've seen it evolve through throughout time. And like you say, I mean, Bitcoin has a cult following already. You've already got 18.8 million Bitcoin out there in probably fairly steady hands. You don't have much left. As more and more people start to join the game, it's not going down to 100, certainly not to zero. Yeah, I don't think that is is even viable. Like you say, you and I would buy the whole lot before it got to zero. So it's not happening.

• 48:33Anthony Pompliano?

  Absolutely. Richard, listen, what you're doing is, I think, right now, everyone's kind of like, what is, what's going on? There's going to be a crypto company that's going to get out into the public markets. Talk a little bit just about, you know, 20 years from now. How do you want people to remember this time and kind of what you guys are doing right now?

• 48:55Speaker 02

  Yeah, I think 20 years from now, I mean, we'll be looking back on this. Everything will be different. Certainly, the financial services industry, you know, we've, the public filing of the presentation that we made actually talks about how the internet affected many other industries, obviously retail being one with, you know, Amazon just sort of absolutely carving it up. That's a $25 trillion industry, whereas, you know, with capital markets, you got $200 trillion industry.

• 49:28Speaker 02

  And this is going to be gargantuan when we start to see companies like ours come in and really change the face of what's being done in investment banking and capital markets. And, you know, we're doing everything to make sure that we're positioned right in front and center of that because derivatives is going to be a core part of it. But also being able to manage your portfolio in a single place is so much more attractive. And then you can actually, as you know, move those assets out and, you know, sit there and at a poker game, say, oh, well, rather than pay you in Bitcoin, I'm going to pay you as part of my property that I just invested in in Sao Paulo, which got 12% yield.

• 50:11Speaker 02

  And if, if I've got quite a lot of it, so I can, I can let you have some of that directly out of my portfolio. And then, you know, what impact is that going to have on the asset management industry? What impact is that going to have on the 401k business? You know, as, as people say, look, I just want to manage everything in one single place. I'm not American, but I understand that if you want to switch your 401k, the amount of paperwork that you have to do is going to take like 10 days to two weeks if you're efficient. So the idea of just being able to move an asset to from one to the other at, at the click of a button, it's going to change everything.

• 50:52Speaker 02

  Um, it's going to change the way we deal with private equity as well. Um, you know, look at all the documentation now. You've got companies like Carter that manage all of that for you. You can now embed cap tables into, you know, tokens and, you know, it can be all updated live time with documentation, everything. This is, it's just remarkable how it's going to transform things. And I'm, yeah, I'm really excited that DigiNext is here now and 20 years from now, hopefully you're still doing a podcast and we can have a good chat about how the world has changed.

• 51:27Anthony Pompliano?

  I'll be old, man. I might've lost my voice by that point. Before we get into the rapid fire questions to, to end this, where can people go find out more about DigiNext, the exchange and kind of what you guys are doing?

• 51:42Speaker 02

  Sure. So DigiNex.com is our overall website. To get onto the exchanges equos.io, but equos.com will get you there as well. We are on Twitter, so DigiNex Global, at DigiNex Global on Twitter, all one word, and then at Equus underscore IO for the exchange. And then I'm on Twitter as well, at Richard Byworth, all one word.

• 52:09Anthony Pompliano?

  Awesome, man. What is the most important book that you've ever read?

• 52:13Speaker 02

  I would say Sapiens. It absolutely changed the way that I thought about the world, and certainly changed my career almost immediately. I read the book, I said, right, that's it, I'm leaving banking. And yeah, it took me about eight months to get out of banking. It's a little bit of a a difficult process when you're tied up in equity and these sorts of things. But yeah, got out.

• 52:39Anthony Pompliano?

  You could ask me one question to wrap this up. What one question do you have for me?

• 52:44Speaker 02

  So yeah, if we are to meet one day in New York, what is the restaurant you're going to take me to?

• 52:53Anthony Pompliano?

  Oh, man. I don't know how I've gotten in this position now, but somehow people ask me for recommendations because they know that I'm likely, because I always eat Domino's and McDonald's and all this crazy stuff. But no, I think that there's a couple of restaurants that I really enjoy. There's a Spanish place, and I've got a soft spot in my heart for this guy. He's down the street from me. He runs a Spanish place called Al Capa, I think is how it's pronounced. And throughout this entire pandemic, I walk by him every day, and he basically gives me updates on the politician's lack of competence. And he basically will, you know, will say something to the effect of,

• 53:37Anthony Pompliano?

  literally for months, "You can go get a massage, but you can't eat in my restaurant. This is bullshit." Right? Or he'll hit me with, "I used to do 80, you know, tables per lunch. Now I do six. This is bullshit." And he just cracks me up.

• 53:53Speaker 02

  You start every day.

• 53:54Anthony Pompliano?

  Yeah, he's just always got some perspective on, you know. This sucks and and he says it with a smile on his face and he's so jovial and all that. So he um uh he's got great food, right? But uh but but I think he I just got like that sweet spot in my heart for him. Uh after, you know, literally seeing a month after month after month saying the same stuff. Um, and then uh there's all the classics like I I think most people really like the, you know, like 11 Madison Parks and and um, you know, Union Square cafes and I'm like those types of places. For me, um, those are less interesting to me, just I think that they're, yeah, that's where everyone wants to go. I I like going and finding kind of the hole in the wall places.

• 54:37Speaker 02

  Yeah, that's the best.

• 54:38Anthony Pompliano?

  Yeah, and then I'll tell you this, that there's one place that I take a lot of people, Plin and I, um, is our favorite place to take people is the uh the JP Morgan Library uh in New York, which is uh not a restaurant, um, but basically it is uh an old um, you know, kind of house slash office slash library uh of JP Morgan and it's literally the size of a block. Uh and you go inside and they've done a pretty good job preserving it, but you just see uh kind of a, you get thrust into this world of the early 1900s. Um, and it's pretty cool just to realize like this was the high society of that time, right?

• 55:20Anthony Pompliano?

  And and kind of all the things that they have um as part of the actual uh decor or the uh the structure of the building. Um, and you walk in this library, uh and it's basically everything except for the door you walk in is all bookshelves around you. It's, you know, two or three uh stories tall, uh filled up. There are secret doors, so you can go up the stairs to other bookcases and all kinds of crazy stuff. And you just realize like it was all about knowledge. Like that's literally all it was, right? Is they, that's why they had the big library was because they literally would, they did have the internet and they would go and pull a book and like learn and look things up. And so it's just kind of a cool experience. So when you come, we'll uh we'll go there and then maybe find a, find a shitty uh fast food place right around the corner.

• 56:06Speaker 02

  Done, that sounds great. I do have one more question for you.

• 56:09Anthony Pompliano?

  All right.

• 56:10Speaker 02

  So so you did uh, you did something quite monumental for the industry. You got, you know, those two pension funds to come in and invest effectively directly in the asset class. How long did that take you and how many of those calls did you effectively make to find those those two investors? Because that was impressive.

• 56:31Anthony Pompliano?

  So I don't know if I ever said this before. What I will start off by saying is the two CIOs who made this decision are incredibly forward thinking, courageous. They had to do a lot of work kind of behind the scenes to make this happen. So it wasn't as easy as just let me do an asset allocation and like, you know, everyone's like, oh, of course, we're going to buy stocks. This was a lot of work on their part. And so they really believed in this, right? And so I'll forever be grateful to them. My partners will as well. But I think that it'll prove to be pretty effective decision. But I think that's kind of the key pieces like without those two

• 57:13Anthony Pompliano?

  people wanting to do this, this never gets done. But they had, they were familiar with Morgan Creek already. I don't think that they had actually ever invested, but they were familiar. And the crazy part of the story is myself and one of the sales guys went to go see them in person in Virginia. And in the very first meeting, one of the CIOs said, yeah, I'd like to do this. And that never happens, right? And so here's, here's the crazier part. It was the first institution I ever met with.

• 57:46Speaker 02

  Wow.

• 57:47Anthony Pompliano?

  The very first institution I ever met with, very first meeting, one of the two CIA, there's three CIOs in the room, kind of from all the different pension plans. And one of them says, I'd like to do this. And so, you know, there's still a lot of work to do, whatever, but basically kind of verbally indicated, let's go do that work and let's get this approved. And then the second one said, you know, I got to think a little bit more and kind of look through everything. But like, this is interesting to me. So I walked out of there. I was like, we're going to raise a gazillion dollars. These people have huge checkbooks and they're like, that's it. This is easier than raising money for your own company. It's like all kinds of stuff. And the, the sales guy basically, we didn't even close the door to the room. And he was already like, that will never happen again. I've been doing this 30 years.

• 58:32Anthony Pompliano?

  You know, like he was trying to like really set expectations low. And I said, well, that's because you haven't had me like, of course, like, you know, like we're, we're going to go do this. And so I ended up calling Mark Yusko, one of my partners afterwards. And, you know, basically was like, you guys were telling me how hard this is like, this is the easiest thing in the world. Like, where's the next one? Right? And he didn't believe me. He literally did not believe me that that's what happened because he's like, I, I've never even heard of that happening. And so he put the sales guy on the phone. The guy's like, dude, I've been doing this 30 years. I've never seen that before. And then in true form, you know, I went 0 for 30 in the next 30 pitches. Cause it was just like, okay, like you got the, the beginner's luck out of the way, got you excited.

• 59:17Anthony Pompliano?

  So I think there will be many more, but, but, you know, ultimately that those two, it just comes down to the CIOs. You know, kind of having the foresight and kind of the courage to, to do it, which is pretty special. And obviously.

• 59:34Speaker 02

  Great story. I, I wasn't aware of that.

• 59:38Anthony Pompliano?

  Look, trust me, I, I've already convinced myself I'm going to tell that story 20 years from now to somebody and they're going to think I'm lying. Right? So it's like, I'm putting it on the record and, and a pretty cool experience. But, but look, I think what you guys are doing right in terms of being one of the first to get out into the public markets. I think like what Michael Saylor is doing with MicroStrategy, obviously what Andy and Catherine at the Fairfax Pensions have done. You know, again, it's just data point after data point after data point. There is, you know, a lot of pioneers that are kind of moving things forward. And ultimately that's what we need, right? That, that's how this ends up being successful. And so it's pretty cool to kind of watch and see.

• 1:00:19Speaker 02

  Yeah, well, I think we've got a great, great group of people pushing it forward. So yeah, thanks for your hard work in that endeavor as well. It's, it's really great to see the progress the industry's made over just the last four years that I've been involved.

• 1:00:34Anthony Pompliano?

  Absolutely. All right, ladies and gentlemen, Richard, go check out Dig X and we will have to against her.

• 1:00:43Speaker 02

  Thanks, Paul. See you soon.