Juthica Chou: Crypto Derivatives 101

Juthica Chou is the founder of LedgerX. In this conversation, Anthony Pompliano and Juthica discuss working at Goldman Sachs, what options are and why they are important, how LedgerX became the only federally regulated crypto derivative platform, and what drove the company from 15 to 100 institutional customers in a year.

• 0:02Speaker 00

  What's up everyone, this is Anthony Pompliano. Most of you know me as Pomp. You're listening to Off the Chain, simply the best podcast in crypto. Let's kick this thing off.

• 0:15Speaker 00

  Juthica Chow is the founder of LedgerX. This conversation covered a lot, including working at Goldman Sachs, what options are, why they are important, how LedgerX became the only federally regulated crypto derivative platform, and what drove the company's growth from 15 to 160 institutional customers in a year. This conversation was a lot of fun, and I hope you enjoy it nearly as much as I did. This podcast is presented by Blockworks Group, the only blockchain event and media production company I trust. If you're an investor, lawyer, accountant, or entrepreneur, and want to attend exclusive events and dinners, visit them at blockworksgroup.io. I promise you won't be disappointed.

• 0:55Speaker 00

  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.

• 1:22Speaker 00

  Before we get into this episode, I want to give a quick shout out to one of our sponsors. Soluna is a blockchain computing company powered by its own renewable energy. The team is planning to build a 900-megawatt facility on top of a 37,000-acre location, one of the best wind sites in the world in southern Morocco. You'll hear more from them later in this episode, but I'd love if you could go check out their website. You can find them at soluna.io.

• 1:45Speaker 00

  Alright guys, I'm here with Juthika. Super excited about this because you guys are doing a bunch of stuff at LedgerX that I think most people don't understand, which is options. And so, a lot of people hear options, "Oh yeah, I know what that is," and have no clue. So you are here to demystify this entire world for us. So thank you for coming.

• 2:04Speaker 01

  Thank you for having me.

• 2:05Speaker 00

  Absolutely. Alright, so let's start with just your background, kind of what you did before LedgerX, and then we can get into how you got into crypto and things like that.

• 2:13Speaker 02

  Sure. So my training was math and computer science, you know, from an education point of view. And then I worked at Goldman Sachs for seven years. I spent five years doing high-frequency options market making and then two years doing institutional franchise trading. I'm still in the options space, so always in the options space, actually. And then about, you know, halfway through my tenure at Goldman, my husband, who's the CEO of LedgerX, was on the West Coast at Y Combinator doing a startup. He'd actually left Goldman to go do this startup. And this was in 2011, when Bitcoin first kind of had its mini-price spikes that seemed kind of crazy at the time. And so he is, you know,

• 2:57Speaker 02

  he got exposed to it on the West Coast. And we found it really fascinating from both a, you know, technical and a financial point of view, you know, it's both an asset class and, you know, and obviously the distributed and decentralized nature of it. So we decided to sort of play around with it a little bit, you know, try to acquire some. And I remember, because I was at Goldman, we had to go through the compliance department, then we had to move our funds through the wallet to eventually get them to docs. And I think it took us a good three to four weeks to actually, you know, get our hands on a Bitcoin. But as soon as we did, we could just send it to each other, you know, across coasts all the time seamlessly. And, you know, we started playing around with it almost like kids. And so that's when we first got exposed to it. It was still, I mean, one could argue

• 3:40Speaker 02

  it's still the Wild West today, but it was really the Wild West back then. So we really just more followed it and, you know, were very interested in it. And then only a few years later, when it seemed a little bit more mature and the timing was right, was when we decided to start LedgerX.

• 3:54Speaker 00

  Got it. Back then, it was really a test of your will, right? How bad do you want this Bitcoin?

• 4:00Speaker 02

  Yep, exactly. And then, you know, I mean, and then, at least now, there are best practices for storage and stuff. I mean, at the time, you just have it on your laptop and you just kind of hope, you know.

• 4:11Speaker 00

  Absolutely. All right. So let's

• 4:15Speaker 00

  Let's talk about what you guys are doing at LedgerX first and then we can get into kind of options 101, if you will.

• 4:22Speaker 02

  Yeah, absolutely. So we are a, we're an institutional platform. We are federally regulated. The two kind of go hand in hand in that we always knew in order to attract US institutions and larger players, we'd have to have a license that they were comfortable with. And so the CFTC is one of the two federal regulators for derivatives and they're the ones that oversee us. We are, our licenses are for an exchange and a clearinghouse. An exchange is what I think most people are generally familiar with, which is what allows you to match trades. So two people come into trade, the exchange is the platform sitting in the middle. The clearinghouse is more of the plumbing and infrastructure that is actually more important and I think, you know, a little bit removed from, you know,

• 5:07Speaker 02

  from an individual's experience. But the clearinghouse is what allows you, the license that allows you to custody on behalf of customers, fiat like US dollars and digital currencies like Bitcoin. And so that's what enables us to be able to offer and provide physically settled products is that we can custody the physical and the US dollars and be that bridge.

• 5:29Speaker 00

  Let's walk through the licensing process, right? What did you have to do to apply? And then why did you guys get the license, do you think, over others?

• 5:42Speaker 02

  Well, it was, it was a process. So we first-

• 5:46Speaker 00

  It always is.

• 5:47Speaker 02

  Yeah. So we first applied in September 2014 and we, you know, we took, we actually, I mean, it was a very big bet on the business. We took the big bet that we believed the CFTC would be the appropriate regulator for, you know, for digital currency derivatives. And that was not obvious at the time, but we saw a lot of analogies to other commodities that they regulate. And so we submitted the applications and then we spent about a good, you know, nine months really just working with the CFTC on, you know, on the jurisdiction, you know, of Bitcoin and how we believed it's a commodity. And about a year later, in September 2015,

• 6:30Speaker 02

  they gave us one of the licenses, the exchange license, and they also, more importantly for us, they asserted jurisdiction over Bitcoin derivatives as a commodity and they shut down unregistered derivatives exchanges that were, you know, that were in the space. And then, you know, then it was more of a process to get them comfortable with the custody of the physical. So, you know, it took a while for us to finally get, you know, the official licenses, which we got in July of 2017. But, you know, really, we started the process so early that, you know, arguably maybe even too early, that the reason we are the only ones and the reason we're first is just because we were, you know, really far ahead of, of

• 7:14Speaker 02

  what we thought was going to be the appropriate path to be licensed.

• 7:17Speaker 00

  Okay. The most popular thing that people know you for and they're using today is options trading, right? What is an option?

• 7:28Speaker 02

  An option is the right, not the obligation, to buy or sell a product, let's say Bitcoin, at a certain price at a certain time. So-

• 7:40Speaker 00

  In the future?

• 7:41Speaker 02

  In the future. And so, you know, you can contrast it to, let's say, you just take Bitcoin, which, you know, people sometimes call like spot, but, you know, for Bitcoin, you really, you can either buy it or sell it. Those are the only two dimensions.

• 7:54Speaker 00

  Right now, in real time?

• 7:56Speaker 02

  Yeah, in real time, you know, just for Bitcoin itself, you know, you can just, you buy it and you can sell it. And those are the only two dimensions. You know, if you buy it, then you just kind of hold it indefinitely. And if you sell it- If you're selling it, if you have it, then you're out of the position.

• 8:07Speaker 00

  And so just because I want to make sure that we're really clear with people because I actually think this is the number one thing that people don't understand in the industry that they pretend they do, right, is let's say that Bitcoin right now is $5,500 price point, right? And when I go to buy it, I go onto an exchange and I'm the buyer, you're the seller. We both agree you're going to sell me the Bitcoin at $5,500. I own the Bitcoin and if I do nothing forever, I will hold that one Bitcoin at a $5,500 kind of cost. And if it goes up or down in value, it's just worth what it's worth whenever I go to eventually sell it to somebody else.

• 8:45Speaker 02

  Exactly.

• 8:46Speaker 00

  Okay. In that same scenario where today Bitcoin is at $5,500, the option does what?

• 8:52Speaker 02

  So the options provide two additional dimensions. They provide a time dimension. So you can have an option that expires a month from now, a year from now. We have options out to June 2020. And then they provide a price dimension. So you can, they call it the strike price, but it's the price at which you agree to buy or sell Bitcoin. So we can enter into a call option, which is a right. If I buy it, it's a right for me to purchase Bitcoin at a certain price on a certain date in the future.

• 9:24Speaker 00

  So an example would be, we're sitting here in November 2018 and Bitcoin's at $5,500. You could buy a call option that says, June 1, 2019, I get the right to buy Bitcoin at $6,000. And in that scenario, why would you do that? Why would you buy the call option rather than just buy Bitcoin?

• 9:49Speaker 02

  Yep. So the the call option, the way that the, if you think about how your payoff on a call option works, if a call option is, if Bitcoin is below $6,000, then you don't make or lose any money. So all you, you paid some price for the option and that's it. So if it's below $6,000, you don't lose any more than what you paid for the option.

• 10:12Speaker 00

  Using those numbers, 5,500 and the call options for 6,000, let's call it six, seven months, what would be the normal ballpark price I would pay for this call option?

• 10:22Speaker 02

  Oh, man, I'm a little out of my, my trading days, but let's call it $1,000.

• 10:26Speaker 00

  Okay, so I basically pay $1,000 for the potential to buy this in the future at that price?

• 10:33Speaker 02

  Exactly. And because the payoff is asymmetric in that if it goes up a lot, you know, if Bitcoin goes to 10,000, now, you know, you're up $4,000. But if it goes down to 2,000, you're not more, you're not out more than the $1,000 you paid. And so because of that profile, people might, from a risk point of view, they might prefer to have an option and, you know, rather than buying Bitcoin itself. And in a way, it provides a little bit of leverage to them.

• 10:59Speaker 00

  Okay, that's a call option.

• 11:01Speaker 02

  That's a call option.

• 11:02Speaker 00

  Is you're betting on the price to increase by a certain amount at a future date, right? A put option is what?

• 11:12Speaker 02

  A put option is the right, again, not the obligation, to sell Bitcoin at a certain price on a certain date in the future.

• 11:20Speaker 00

  Okay, so $5,500 today, I could buy a put option that says June 1st, 2019, $3,000 Bitcoin. And why would I do that?

• 11:30Speaker 02

  So you might, most people buy put options as what they would call like protection or insurance. So let's say you have a whole bunch of Bitcoin and, you know, you might want to be, you know, want to be in Bitcoin for the long term, but you might be worried about in the short term, you know, whether it's news related or, you know, any, anything that's out of your control, you might be worried about the price going down in the short term. So you can buy some protection so that if Bitcoin does go down to, you know, $1,000, well, now you can sell it at $3,000. And so you, you know, you essentially, what people say is like hedge your position.

• 12:07Speaker 00

  Okay.

• 12:09Speaker 00

  What type of people are normally buying and selling these options?

• 12:13Speaker 02

  So it's a really wide range. You know, if I look at LedgerX's customers, our institutional base is everything from miners to Bitcoin companies that are either doing merchant or consumer services or building other businesses that rely on digital currency to funds, whether they're crypto funds that popped up specifically for crypto, or even just traditional family offices and hedge funds, and then to trading shops. So if you look on the, let's start with call options. If you look at the folks who are buying call options, sometimes they're volatility traders. And so with options, you can make a lot of different types of bets

• 12:54Speaker 02

  and put on a lot of different types of positions. And so they might buy an option for the volatility because they think Bitcoin's going to move. Some funds will buy call options because in the same way that we were talking about how you get some leverage and not as much downside, they might not want to put a whole bunch of money into Bitcoin right now. But if Bitcoin does go up a lot over the next six months, then they want to be able to perform. They want the fund to perform well and not underperform. So they might have a lower stake in Bitcoin but buy some call options. I think the sellers of call options are by far people who, either people, high net worth individuals, or companies, or miners

• 13:38Speaker 02

  who have Bitcoin on their balance sheet, and they're not really earning any yield or interest off of it. Sometimes they want to monetize Bitcoin. Maybe they would sell a little bit of Bitcoin at 5,500 to pay their bills. And what a call option allows them to do is they can sell maybe a 10,000 strike call option and pledge their Bitcoin against it. And right now, today, maybe they'll collect $500 for that.

• 14:05Speaker 00

  So that $1,000 that we talked about earlier costs to buy the call option, right? So I want to buy that call option. I spent $1,000 to, you know, June 1, 2019, $10,000 call option. It's at 5,500 today. Who gets the $1,000?

• 14:22Speaker 02

  So that goes to the seller. So the seller of the call option, on day one, the seller receives that $1,000. And so they can use that. They can withdraw it from LedgerX, they can use it to, for their purchases, use it for whatever they need, and they get that today, you know, on the day that they sell the option. And then, you know, on the date that the option expires, if Bitcoin is above 10,000, then they're set, they'll sell Bitcoin at 10,000 and receive $10,000. And if it's below 10,000, then they'll just get their Bitcoin back. And so, you know, a lot of our, a lot of the customers who do these types of trades, they prefer that to just selling Bitcoin at 5,500 today.

• 14:57Speaker 00

  Yeah, speculation.

• 14:58Speaker 02

  Yep, and, and because Bitcoin is, you know, even though volatility's been lower now, it's still much more volatile than other, than, you know, other products out there. With options, because options have the asymmetric downside versus upside, when volatility is higher, it makes options prices higher. And so the sellers can collect more, you know, US dollars today.

• 15:19Speaker 00

  Got it. And so how does LedgerX make money?

• 15:21Speaker 02

  We, so currently, we just charge a transaction fee on, you know, on all trades that are, are matched on the platform.

• 15:28Speaker 00

  Okay.

• 15:30Speaker 00

  You've got a range of both call and put options across the platform, right? So some are short-term, highly volatile type, right? Some are long-term, low volatility, and everything in between. What are the most popular ones right now?

• 15:43Speaker 02

  The call options in general, the, the call options at higher strikes than Bitcoin price. So what, you know, I'll call them like upside call options. Those are by far the most popular.

• 15:52Speaker 00

  So give us an example of one.

• 15:54Speaker 02

  Yep, so the, like a December, so even a December 2018, 7,000 strike call option. And then-

• 16:01Speaker 00

  Wait, say it again, a December 2018, 7,000 call option. So people are betting on today's 5,500 dollar price is going to increase to more than 7,000 before the end of the year.

• 16:15Speaker 02

  Yeah, and the way, you know, one way to think about that bet also is it's not necessarily just that they say they're thinking about it like it's just going to be more than 7,000. Part of it could be that, you know, let's say that that option costs like $50. If, you know, you might say, well, if it is above 7,000, I think it's going to be a lot more than 7,000.

• 16:34Speaker 00

  It's going to be more than what I pay for the option, for sure.

• 16:37Speaker 02

  Yeah, exactly. You're going to make much more. So they'll say, you know, okay, maybe I see some potential catalyst coming in December and I don't know if they're going to move Bitcoin, but if they do move it up, then, you know, I think Bitcoin would go to 10,000 so that that would be worth the three, that option would be worth $3,000.

• 16:52Speaker 00

  Got it. Okay. And then you guys have a really unique derivative in that you've got this June 2020 option, right? And so describe what it is and kind of what the thought process was and then we can get into how people are playing it.

• 17:04Speaker 02

  Yeah. So we have a number of, you know, expirations that we list and we have flexibility in terms of where, where we can, how far out we can go, or, you know, even how near dated. And we do see a lot of people, especially with short-term news, they trade, you know, one month, two month, three month options. And we have a lot of demand further out. And I think one of the things that's been really nice for us since we've been operational for a year is we can, you know, we can kind of observe and listen to customers and see what they want. And a lot of our customers started asking for June 2020 options because of the halving that's expected in May 2020. And so these options allow a wide range of

• 17:46Speaker 02

  customers from miners to just speculators to individuals and to companies to put on positions based on how either a hedge that they might want or how they believe the halving would affect Bitcoin prices.

• 17:59Speaker 00

  So people are identifying this moment in time, the halving, that there's historical precedent in terms of how the market has reacted and it can be interpreted a bunch of different ways. And so what people are now saying is the next halving is going to have an event that can make the market go up, down, sideways, whatever. What you're basically allowing them to do is to make bets or speculate on what is going to happen. So if I believe it's going to increase in price, I'm going to make a certain investment in options on that June 2020 expiration date and vice versa if I think it's going to go down, et cetera.

• 18:38Speaker 00

  Can I go onto the platform and arbitrarily pick a date? Or do I only have to use the dates that you guys select?

• 18:45Speaker 02

  So LedgerX selects the dates and the strike prices. And we do that usually in response to and in conjunction with where we think customer demand is. So for the 2020s, the two strike prices that there was most demand for, actually the $25,000 strike and the $50,000 strike.

• 19:01Speaker 00

  Interesting.

• 19:01Speaker 02

  So those are the only two that we have listed there. In general, you know, part of the reason we do that is when you have options, there's so many different ones that you can list. We want to concentrate the liquidity so that everybody is trading a lot of the same ones. But we're usually very, you know, we usually rely on customer feedback and where participants want to trade to drive what we inevitably list.

• 19:24Speaker 00

  What, um, what does it currently look like in terms of how people are playing that June 2020 option? Is it the 25, $50,000 calls puts? What's more popular?

• 19:34Speaker 02

  The calls. And, you know, I think in general, there's more buying demand for sure.

• 19:39Speaker 00

  Got it. So more people are buying calls on a June 2020 option than anything else?

• 19:43Speaker 02

  Yeah. And the 25,000 strike is the one that's more popular.

• 19:46Speaker 00

  Got it. What does it look like today through this bear market, right? So we've had 70, 80, you know, percent drawdown in the market.

• 19:56Speaker 00

  It's now gone on for almost 11 months from kind of the all time highs.

• 20:02Speaker 00

  Have options become more popular or less popular? And then what, can you give us some data maybe around, you know, monthly volume or something like that that you guys are seeing?

• 20:10Speaker 02

  Yeah, our, uh, so overall, our volumes have grown approximately 20 to 25% month over month, year to date. So it's been, you know, in a variety of different market environments. And I think you see that with options in general. The, what people usually talk about and, um, you know, when they think about derivatives and options is, okay, if the market goes down a lot or goes up a lot, you know, options are very active. And that's absolutely true. And we've seen it recently on our platform in the last week as well. But I think one of the unintuitive elements is even if the market is kind of trading range bound or not moving that much, we're seeing a lot of customers come into options. Because they want to either, you know, earn some yield off their Bitcoin if they think,

• 20:52Speaker 02

  okay, we're going to see another, you know, 2014, 2015 where we're kind of flat for a while. They want to monetize the position a little bit more. And, you know, for speculators too, or for traders and for funds, it provides more types of positions that they can put on if they may not have conviction about, you know, buying or selling Bitcoin itself right now.

• 21:12Speaker 00

  Got it. What do you think most institutional investors right now believe to be precluding them from participating in the options market? Right, so what's the thing that's holding it all back?

• 21:26Speaker 02

  Well, I think institutions is such a broad term, you know, can apply to such a wide range of, you know, financial institutions. So LedgerX is an institutional platform, which, again, it can apply to Bitcoin companies, actually, high net worth individuals can qualify, and then obviously your traditional trading shops and funds. So we, you know, we launched with 15 institutions in October of last year, and now we're up to 160 institutional participants.

• 21:53Speaker 00

  Wow, so you've gone from 15 to 160 in about 13 months?

• 21:57Speaker 02

  Yeah, and, you know, we continue to see really steady growth there. So we're seeing institutional involvement, but, you know, at the same time, I mean, the, there are, again, such a wide range of institutions that if you are a fund that's managing, you know, 20, 30 billion dollars, then there might not be enough opportunity necessarily for you to get into the space, but for the institutions that are, you know, up to 500 million dollars, there's easily enough opportunity and liquidity that makes sense for them now. So I think as, you know, it'll just continue to grow where the market will be interesting to different sets of institutional participants until it really gets up to what I think people are considering, considering like very large institutions.

• 22:36Speaker 00

  Got it. And then from a, like a monthly volume or, what does that look like? So it's growing, but are we talking tens of millions, hundreds of millions, billions of dollars a month? What do you see from the volume side?

• 22:48Speaker 02

  Probably between 50 and 75 million dollars a month.

• 22:51Speaker 00

  That's, uh, that's growing pretty quick?

• 22:52Speaker 02

  Yeah. And, again, primarily in options. We do have a next day Bitcoin product, which allows people to buy and sell Bitcoin, which in many of our customers use out of convenience and because the fees are very low. But obviously, options are where it's a particularly unique offering.

• 23:09Speaker 00

  Got it. What do you think in terms of other derivative products? Right? So you guys are in options, you're kind of the first federally regulated options here in this market. Are there other things that are interesting on the derivative side? Kind of where do you guys see the business going over time?

• 23:25Speaker 02

  Yeah, I think there's two, I see two different areas. So what we're doing right now with options, I think it's an important product. It's important for the ecosystem. But in some ways, we're not really, we're kind of taking things that have worked from other markets, very traditional vanilla products, and bringing them to Bitcoin because they make sense. And so we'll continue to do that. And you see that happening in other areas of the ecosystem with people working on ETFs and stuff like that. But at the same time, further down the line, as the markets mature, I do see opportunity for derivatives products that really are unique to Bitcoin and cryptocurrency. And so we'll definitely explore those as well.

• 24:05Speaker 00

  Got it. And right now, the options are just Bitcoin? Or you have options across other digital assets?

• 24:11Speaker 02

  Currently, ours are just Bitcoin.

• 24:13Speaker 00

  Was there a strategic reason, a kind of fundamental belief as to only do that? Or what was the logic behind just Bitcoin?

• 24:21Speaker 02

  Well, so part of it is a regulatory question. So the things that would fall into ICOs and things that would fall into the SEC's domain, that's not our area or the license. So we're specifically in the CFTC area of focus. And so within that, we have Bitcoin. We have, again, built out, I want to say this carefully, we've built out the functionality for Ethereum, but it's really, that's up to the determination of if that eventually ends up being a commodity under the CFTC. So it's really regulatory, but at the same time, I think overall, where we kind of see this playing out is having really a handful of digital currencies with different trade-offs, and probably not like hundreds of them.

• 25:06Speaker 02

  And so focusing on that handful.

• 25:08Speaker 00

  Got it. How do you compete with the fidelities, the backs of the world, right? These people who are coming from the legacy financial world. You and your husband, obviously, come from that world, but you started a new company, right? So you kind of start from scratch, not from knowledge, but from resources and headcount and all of that. How do you compete with the big guys who come in? Do you think that there's, I'm assuming there's advantages and disadvantages, right? But how do you think about that?

• 25:34Speaker 02

  You know, we really see ourselves as kind of straddling both coasts. You know, and Paul spent a lot of time on the West Coast. And I think there's a lot of benefits to both sides and we want to bring those both in. Our model is, you know, we control the entire process. So everything is vertically integrated, which allows both a seamless customer experience, but it also gives us ultimate control over how quickly we can incorporate feedback and incorporate what we see. Whereas in the traditional world, usually you have to go through intermediaries that either control the interface or route the orders or, you know, that you have to integrate with legacy technology. And so for us, that allows us to provide a really seamless experience that we can iterate on really quickly and that we can observe and follow exactly how people are using the platform.

• 26:18Speaker 02

  And I think one of the biggest advantages that we have right now is that we have been operational for a year. And so we've had a lot of time and a lot of data and a lot of feedback to work off of that is informing a lot of our ultimate product decisions that will come out that other folks just don't have because you can only get that by really having a product in front of customers.

• 26:38Speaker 00

  Got it. What keeps you up at night, right? And I'm sure there's a whole bunch of things, but building a business in the crypto space that's heavily regulated, right? Given what you guys are doing, dealing with institutional customers, and then there's this element of like time sensitivity just by the nature of the product you sell, right? Because there's options with an expiration date. What's like the number one thing that, you know, you just sit there and you're like, oh, this is what I'm worried about or working on?

• 27:06Speaker 02

  Well, I mean, I'd say one of the biggest, just the things that are outside of our control that ultimately affect our business and affect what we have to do. So, you know, we are, because we are so highly regulated and we value our relationship with regulators, even if there's headline risk or if there's something that happens in some area of the world that may not directly affect LedgerX, but you know, affects the Bitcoin space, those usually become problems that then we have to, you know, we have to deal with. And so there's obviously a lot of stuff out there that we can't control, a lot of ways that, a lot of things that are being done that we may not necessarily agree with the approach, but they ultimately end up being things that we have to, we have to face in all areas of the business, whether it's, you know, with customers, investors, regulators.

• 27:49Speaker 02

  And there's, I think there's going to be that for a while, that, you know, headline risk until things are really institutionalized.

• 27:55Speaker 00

  Absolutely.

• 27:58Speaker 00

  You come from Wall Street, right, and working at Goldman. Do you have any sense for how your former colleagues, whether they still work at Goldman or not, how they look at this? Are they interested in it? Are they rushing to the door and they want to jump into the industry? Are they, you know, "You guys are crazy for going and building a business in this space"? Kind of where do they shake out?

• 28:19Speaker 02

  I mean, I obviously can't speak for Goldman, everyone at Goldman, but...

• 28:23Speaker 00

  Just overgeneralize people from that industry?

• 28:26Speaker 02

  Yeah, overall, I think it's, there's a lot of interest. But, you know, it's a little bit removed from, you know, from real, I would say, you know, operations and building businesses and really getting into the space. There's some amount of, I mean, people are always looking for interesting things to trade on the side. But that, I would say, is more interest in terms of a tradable asset that is new and different as opposed to real interest in, you know, the cryptocurrency space and ecosystem.

• 28:59Speaker 00

  It's super interesting because, you know, you basically took something that exists in the legacy financial system and you're applying it just to a new asset, right? And so there's a lot of crossover, but you still have to find people who are excited about the asset, who have long-term belief in, you know, this niche of finance. And then ultimately really are betting on not just it to survive, but actually to thrive in a really big way.

• 29:21Speaker 02

  Yeah, and I think part of it is, if you look in, you know, New York, for example, the, a lot of, it's hard for a lot of people to really get excited about some of the use cases, like payments, for example, you know? People who have JP Morgan Chase accounts, like their credit cards work just fine. So they're not sitting there, you know, so they're kind of, the use cases to them are not as clear. Now, obviously, you can imagine many two-billion-bank people, many cross-border payment use cases that are interesting. We actually think, you know, the use case that we're focused on that is uniquely possible because of Bitcoin is Bitcoin as a form of collateral. You know, that's at the clearinghouse, we take it as collateral. And it's not just so that we can physically settle trades,

• 30:05Speaker 02

  but it, people can pledge collateral to the clearinghouse 24/7, 365, and just start trading. And that's something, if you look in the traditional world, that you just can't do. You know, limited by banking hours, by weekends, by holidays. And so, you know, I think it's really, there has to be something more driving it than just, you know, being interested in the price.

• 30:24Speaker 00

  For sure. You get to go to work every day with your husband. What's the most fun part about that?

• 30:33Speaker 00

  I don't get to ask many people that question, right? Because they're just not in that situation. What's the most fun part about it?

• 30:38Speaker 02

  Well, it's, I mean, overall, we've actually worked together, you know, a lot in the past. Probably the best thing about it is that you have a significant other that understands, you know, everything that you're going through, whether it's, you know, it's good or bad. But I think also, I mean, just really being in sync, you know, the, it's, they kind of say on the West Coast that co-founder relationships are kind of like marriage. And I think when it, you know, when it works, it does really work because you have to be, in this sort of space and in startups in general, you just have to be so in sync and so on the same page, whether it's about the ultimate vision or the day to day. He and I, actually, the bet, like, the, the thing that really works well is we're just, we complement each other very well. He's really good at stuff I'm not good at and I'm better at stuff he's not good at.

• 31:22Speaker 02

  So it's, it's just a really good working relationship, but it's just lucky.

• 31:26Speaker 00

  That's awesome. All right, before we wrap up, I ask a bunch of kind of fire round questions, if you will. What's the most important company, in your opinion, in crypto, other than LedgerX?

• 31:41Speaker 02

  It's a good question. I don't want to, I don't want to show any favoritism to, I'm going to not answer the question, but answer it. I don't want to show any favoritism to customers, but we're really excited about Lightning Network and a lot of things that we can do with the clearinghouse, you know, once that's more mature.

• 31:56Speaker 00

  Got it. I forgot, actually, this, where'd the name come from?

• 32:00Speaker 02

  Paul just came up with it on, I remember we were at a Starbucks waiting for, to go to pitch a VC, and he just came up with it on a napkin and the domain was available, so we went with it.

• 32:11Speaker 00

  Innovation is sometimes birthed out of necessity. Right? We got to come up with a name, let's go.

• 32:20Speaker 00

  That's awesome. All right, if you could wave a magic wand and change or improve any one regulation, what would you change?

• 32:29Speaker 02

  Good question. I mean, I would say in the US, just this bifurcation between everything that's going on with the ICO token world and in the commodities world, which is Bitcoin and Ethereum, it makes it, companies basically just have to choose one or the other because of the two very, very different regulators.

• 32:52Speaker 00

  What do you believe in crypto that you think the highest majority of other people would disagree? What's your most controversial thought?

• 33:00Speaker 02

  I actually, so I still think that it's not mature enough for the very large institutions.

• 33:06Speaker 00

  Why?

• 33:07Speaker 02

  You know, I think if you look at, I mean, even a lot of the, if you're looking at people who are going to put real money into this, you know, there's not a lot of infrastructure that's actually been established. I think if you look at like spot exchanges, for example, the spot exchanges are traditionally, you know, in the crypto world, they're overseen by states, you know, state licenses. I don't think states are appropriate regulators for a financial exchange. And we haven't really, you know, and I think you see that lead to things like when you see flash crashes and when you see things that are just not normal in the traditional space. And, you know, so I don't know if it's going to take time or if it's just going to be that, you know, like platforms like ours, as we continue

• 33:50Speaker 02

  to evolve. But I, yeah, I just don't think that those areas are as mature as they need to be.

• 33:55Speaker 00

  Interesting. What's the most important book you've ever read that you think every single person would go read right now?

• 34:03Speaker 02

  Well, since we're talking about startups, I mean, if you're doing a startup, you got to read The Hard Thing About Hard Things by Ben Horowitz, for sure. And then you got to read it like every few months because different parts of it will resonate with you every few months.

• 34:15Speaker 00

  He really did a fantastic job with that one, especially just making it actionable. And I think, you know, when you read that, especially when you're building a company, a lot of people walk away and just like, it'll be okay. Right, you'll figure it out. Any crazy stories from as you guys have been building the company that you were just like, this is insanity that we're doing this?

• 34:35Speaker 02

  I mean, we only almost bounced payroll about a dozen times in 2015, 2016, when everyone was focused on private blockchains and permission ledgers. And we were still really focused on Bitcoin. We're not selling derivatives on a technology. And it's a difficult environment, but got through it.

• 34:54Speaker 00

  A dozen times? You guys did a pretty good job.

• 34:57Speaker 02

  But we never did. We never did miss a payroll, but it was very close.

• 35:00Speaker 00

  That's amazing. All right. So I'll end every interview letting the guest ask me one question. What one question would you ask me?

• 35:12Speaker 00

  I didn't warn you about this.

• 35:14Speaker 02

  See.

• 35:18Speaker 02

  Well, what's the most, which is the most interesting podcast that you've done so far, outside of this one, of course?

• 35:25Speaker 00

  Well, yeah, of course, this one. So I'm gonna answer this. I'm gonna cheat and give you two. So the most interesting, I think, because people didn't understand anything about it. We did one with Travis Kling, and Travis talked about algorithmic market making, wash trading, kind of all of the nuances of exchanges and nefarious activity and kind of how price manipulation works. And just things that I think people, they read a headline, again, yeah, I kind of know what that is, but I actually don't know what wash trading is. And so I'll listen to podcasts and get an explanation, then go tell all my friends, and they'll think I'm smart type thing. But he just has a really good command of how that stuff works, and also how it is being leveraged today. So he was able to talk about

• 36:07Speaker 00

  specific exchanges, how it works. The most important podcast we've recorded is with Murad, and we basically laid out the ultimate case for Bitcoin. And, you know, somebody asked me the other day, why do I think that podcast specifically was so popular and kind of got such wide distribution? And I really think that he did a good job of not only explaining what is Bitcoin, why is it important, you know, here's kind of the things you need to know. But he really expanded people's imagination of what is possible if adoption continues, right? And so, you know, he threw out a $10 million Bitcoin price in the future.

• 36:50Speaker 00

  Well, that's much, much higher than most people have heard in terms of, you know, unless you have heard 100, 250,000, 500,000, 10 million is almost like ridiculous in their mind. And then he walked it back and said, this is how I think we get there. This is the impact on the world. And the interesting thing about that episode in particular is the breadth of type of person who listens. So everyone from, I have known nothing about Bitcoin, my friend sent me this, and so I started listening, to highly sophisticated people that you and I would know that are public and, you know, most people say they're experts or they have expertise in the space. They still found it highly compelling because it's just such a, you know, it pushes the envelope so far, right? So I think that, you

• 37:34Speaker 00

  know, with this episode specifically, people don't know what options are. They actually have no clue how they work. They don't know why they're important. They don't know who would use them. And so, you know, our hope with the podcast is just that, you know, while I learn, you know, other people can learn alongside us. And, you know, people haven't stopped listening yet, so we'll see what happens.

• 37:51Speaker 02

  Absolutely.

• 37:53Speaker 00

  But awesome. Thank you so much for coming. This is super exciting. I think that what you guys are building is obviously really important. And congratulations on kind of all the growth to date. And hopefully we can keep doing this as you guys kind of periodically keep progressing.

• 38:04Speaker 02

  Yeah, thanks a lot. It's a lot of fun.

• 38:08Speaker 00

  All right. And we're back here with John Belizere, the CEO of Soluna. You can check them out at soluna.io. So John, you got to tell me, why'd you choose to leverage wind rather than solar power for this project?

• 38:19Speaker 03

  Thanks, Bob. Why wind versus solar? I get that question a lot. It's a great question. I mean, there are many benefits to consuming and applying energy on that site, you know, from a wind versus solar perspective. But our location in Dakla made it pretty easy. We're sitting on one of the best wind sites in the world. Wind travels there at 22 to 23 miles an hour consistently. If you look at a wind almanac, it is one of the reddest parts of the world. But, you know, we did look at solar. And when we looked at that...

• 38:51Speaker 03

  Difference, what was interesting was wind blows all the time. In fact, the wind blows fiercer at night in the Dakla region than it does during the day. Solar doesn't have that benefit, right? It actually, you can only benefit from solar during the day and you've got to combine that with a really large battery. And when we loaded that into our calculations, we found that we were deploying more cost than we needed to for the amount of energy that we'd be getting out. So wind proved to be a much better application of this site, especially since it's a wind site, than solar. We also looked at blending it, so wind and solar, but the wind was so productive that solar was not really much, really more additive than the wind on the site.

• 39:36Speaker 03

  And so that's why we went with solar to start out versus, I'm sorry, that's how we went with wind versus solar.

• 39:42Speaker 00

  Very cool. So in Morocco, we're long wind, short solar. If you guys want to learn more about the project, you can go to saluna.io.

• 39:52Speaker 00

  Hey, everyone. Pop here. If you liked this episode of Off the Chain and want to help us take crypto to the top of the Apple, Spotify and other podcast charts, please do us a favor and rate, review and subscribe. To review, simply go to the Off the Chain homepage, scroll down until you see the five blank stars. Taking 15 seconds to fill those stars in and leave a quick review goes a long way in helping us take the entire crypto ecosystem to the top of the charts. I appreciate you listening and see you next time on Off the Chain.