Eddie Chung & Bill Barhydt, Abra | theCUBE + NYSE Wired: Crypto Trailblazers

Palo Alto studio connection Silicon Valley and Wall Street. I'm John F co here with Dave Volante my co-host. [music] >> Welcome back to the cube studio here at the New York Stock Exchange. I'm Jim Allen, co-host of NYC Wire's Crypto Trailblazers and crypto has moved from fringe of finance into the financial system itself. Bill Barheight has been building in this space since 2014 and now Abra is preparing to go public as it bets on the next phase of digital finance. He's joined today by Eddie Chung who leads Abra's business and corporate development. So the company pushes deep into DeFi and institutional finance. Folks, welcome to NYC Wired. >> Great to be here. Thanks for having us. >> So I mentioned that we've had a lot we've had a real range of individuals on our crypto trailblazer show in this last year alone. It's definitely I find it a fascinating space. Billy, you've been in the industry quite a while. You're an OG as they say. Talk me through Abra this company and I guess this market moment, right? It could be a very big year for both of you. >> Yeah, I mean it's it's incredible how things have changed in the last uh 10 years. Originally, it was, you know, kind of this libertarian playground where we had kind of our own money, >> right? And that was uh what Bitcoin was for a very very small group of people who all kind of knew each other which is ironic given that it was supposed to be decentralized. Uh [laughter] but um [gasps] now it's just like like you said the fact that you can have a diverse group of industries and people on your program speaks volumes to the fact that that didn't exist before. You couldn't have had them on because they didn't exist. and and so an entire financial ecosystem has been created around what originally was kind of libertarian money but but now it's basically what was just money is now becoming banking right and so the noun is is basically being usurped by the verb which basically says I can do trading I can do perpetual futures I can tokenize my house I can tokenize shares and it's this whole set of multiple industries and aspects of finance that are being integrated into our world in real time. It's it's remarkable to watch. >> And Eddie Abra, so you make a good point, Bill. There has definitely been some sort of conformity happen in the space too of late, right? Especially as we see more and more DeFi meets TRDFI. We've had a lot of folks on that maybe meet the and I'm not not no one here mentioned, but maybe meet the profile of more finance bro versus tech bro, right? It's a real mix of two worlds there. talk about what's happening from a customer business development perspective from from Abra. >> Yeah. So I just joined uh ABRA about four months ago and the focus for ABRA is to distribute our wealth solutions for the masses uh with a focus on the institutional clients uh with our SEC but as we go on chain to serve our yield strategies, our lending and borrowing services more broadly to all of the DeFi ecosystem. And so the partnerships that I'm most focused on today is to build the rails, the plumbing across both the DeFi ecosystem, but also in traditional finance as the blurring of the lines that you alluded to is happening to ensure that we ABRA are in a position to serve the clients where they want to be served. So that's where my focus has been to date and we're uh excited to to continue on that journey. So, Bill, you have seen that customer journey evolve. Your own customer profile has evolved pretty significantly too, I'm sure, from 2014 to now. >> You mentioned you were based in the Bay Area back then, which was probably a different world to the one you're operating in Monday to Friday these days. Talk about what is it your positioning though, like how did you continue to evolve the strategy and remain competitive? Like what are institutions looking for that you know retail investors aren't? >> Yeah, sure. The earliest days of Abra was like, "How do I buy Bitcoin, excuse [clears throat] me, and then how do I buy Ethereum?" Now it's it's, you know, we're issuing yield bearing stable coins so people can literally hold digital dollars and earn more digital dollars, right? And so the complexity of what we're building and what we're able to offer and and the users understanding, it's just night and day versus where it was 10 years ago. So the idea that we can issue a yieldbearing stable coin or have a token that allows you to basically take your bitcoin and earn more bitcoin from that token. Uh the idea that you can borrow against your bitcoin uh and not sell your bitcoin like these are extreme evolutions versus where we were just a few years ago and our client base has evolved along with that. In other words, we have family office clients who, you know, [snorts] Bitcoin was a toy, a test to them. I'll put a, you know, a million dollars in Bitcoin as a family office. Well, that went from a roundoff error to being doubledigit percentages of their net worth because it's been the most appreciating asset over the last 10 years. >> And so now for them, it's like, well, how do I manage this? How how do I make this tax efficient? How do I access the gains and not have a big tax bill? Can I borrow against this and hold it? Can I earn yield on it? So, so what was like kind of play a play thing has now become a real part of their financial planning/n networth you know slash financial needs. So when we think about what you have built right, we think about the perspective of what institutions need. They need a level of agility which is what you just described. Trust security is huge in the space. Talk about the differentiators from a platform perspective, right? Because a lot of folks talk about building the rails, building, you know, the one-stop shop if you like, but you need to compete on something, right? From from a crypto perspective, how how do you differentiate in this market? >> It's it's it's a great question for us. It's very straightforward. So, so there are 100 exchanges that trade facilitate trading crypto will hold your crypto and and and that's a great business, but you're basically on the exchange's balance sheet, meaning your personal asset becomes the exchanges liability, right? Just like when you deposit at a bank. Now, if you're trading all day, that makes sense. Okay? If your goal is to have secure custody to facilitate loans against your assets to uh you know be able to margin them then putting your assets on somebody else's balance sheets doesn't really make sense. So what we did is we built a traditional wealth adviser. It's SEC registered as an RAA and through that wealth adviser we offer traditional custody. We offer loans. We offer yield products. We offer bespoke, you know, versions of all of those to and that are tailored from both a regulatory and product perspective to meet the very nuance needs from a wealth management perspective, not a trading perspective. And that space is actually relatively small >> because the number of people who are let's call it digital asset wealthy is is small but growing very fast, right? because it went from zero to be a $4 trillion space in less than 10 years, right? So, so the needs are evolving quickly and the idea of of wealth management is actually relatively new in our space. >> Wow. Eddie, help me profile them, the people that occupy that small space, right? What are their priorities? >> Like, you're out, I'm sure, hobnobbing with these folks quite regularly. Like, what are you hearing? What what what are they looking for? Right? Because it's a evolving concept in industry. Yeah. So, to to Bill's point, wealth is a newer part of the the industry. And what we're hearing from clients that we already serve today and those that we're going after is they're looking to get more out of their crypto than just simply buying and holding. Right. So, AB's been in the business since 2014, as you mentioned, focused on yield strategies, lending and borrowing services that allow you to get more out of your crypto in a riskadjusted manner. And so on the yield strategy side, for example, we manage delta neutral trading strategies, a mix of basis, trades, liquidity provisioning, options, and such that allow us to get more out of the client's crypto that they hold on the lending and borrowing side. Similarly, without having to sell your Bitcoin or your ETH or Salana, we can take that crypto and borrow against it where clients can in a very low cost and capital efficient way make use of those proceeds for trading or any other use case that they might see is a good use for those stable coins that we we deploy. So those are the the sort of client benefits that we are focused on most at ABRA and we're looking to expand with the vision that uh you know Bill is also sharing around the larger banking onchain banking vision that we're we're focused on. >> I would say real estate is is is probably the most interesting use case right now. So people borrowing against digital assets and and right now it's when I say digital assets it's mostly just like crypto, Bitcoin, Ethereum. But now what we're starting to see is, oh, I want to borrow against my tokenized QQQs, my tokenized SpaceX, and I'm going to use that to buy my house. >> Should stay on tokenization for a second. I think you refer to it as a second coming of crypto. Am I correct? >> 100%. >> Okay, explain that to me, right? Like tokenization, it's an evolving asset class. If we simplify it for a second, it means that, you know, what will be deemed eligible is expanding quite significantly, right? But tell me why you think it's the second coming, especially give it to me as if I'm a skeptic. >> Sure. So, the first example of tokenization in crypto that worked was the stable coin. What is a stable coin? A stable coin basically takes a dollar, leaves it in a bank account, and gives you a token that represents that dollar. Why is that interesting? Well, I can now move that digital dollar peerto-peer with nobody in the middle. Like, you know, as a kid, you ever talk, you know, with with the two cups with a string? That's peer we call that peerto-peer, right? in in in in tech world. That's how you move a stable coin around. Is that valuable? Well, there's $300 billion locked in stable coins last time I checked, right? And and so it's being used for everything from trading, uh crossber remittances, u generic, you know, crossber commerce, um you know, all kinds of peer-to-p peer payments. Um the uh international futures exchanges now are using stable coins uh as the pristine collateral because they know that they're generally backed with dollars or treasuries in a bank which which are audited. Right? So so that is the pristine example. Now what happens if other types of securities become tokenized? Well, if you start uh tokenizing traditional equities uh traditional indices on equities, what happens is is that also becomes collateral. The same way Bitcoin, Ethereum, Tether are all collateral. It means I can borrow against those shares. I can use them as collateral on futures transactions, right? Which is the business of the parent company of obviously Nice here. So, so that's the future of investing, right? So, wealth management, banking, trading, all merge to be a new type of financial system where all of the assets are fungeable because they're all on these interoperable blockchain networks because my Apple shares, my stable coins, my Bitcoin, my Salana, they're all tokens. They're all fungeable. They're all pristine collateral, right? and they're all basically liquidatable 24/7 which is what it takes to facilitate lending. >> While you describe there though, right, that kind of convergence of industry, it also highly increases the TAM from what you originally described in the wealth management space. Right. >> That's right. >> So Eddie, talk to me about that. What is the evolution of this kind of total addressable market? Like where are where do you see opportunities two or three years from now that you didn't 3 years ago? Yeah, [snorts] >> I'm often reminded of the $800 trillion financial assets TAM uh as I uh have been on this crypto journey for a while. And that's the that's the end goal, right? Is how can we tokenize all financial assets so that it can be more funible than it is today in the traditional system so that it can be used in a more cost and uh capital efficient way than today. And so that is the TAM that I think about oftent times as we uh are looking to modernize overall the overall financial system that we know today. So >> Bill, I want to talk to you about the operating cost of something like this, right? And what's happening from the perspective of tech. We talked to a lot of CEOs, a lot of founders about what's happening in the other world of tokens, okay, around spend predictability, you know, building proprietary models, especially in a space like yours where there's a lot of security spend, I'm sure, to make sure things are absolutely laser tight. >> Talk me through that like bring me under the hood from the perspective of how you think about that and what you you yourself and the team at Abbert are building. >> So, so there's I have two perspectives on that. So there's the customer's perspective and then there's the the perspective of the service provider that we are to our clients. From a customer's perspective, this is the best of all possible worlds because what adds cost when it when it when remember we talked about Bitcoin kind of being the future of money and showing how it could work and now you know like tokenization is kind of like the verb meaning meaning what how what kind of banking can I do with it? When you start tokenizing things and you start moving things on chain, you're eliminating multiple parties from transactions, right? If I can talk to you with the the the the the two cups with the string, I don't have a phone company in the middle. And so, if I can move a stable coin peer-to-peer, I've eliminated a bunch of companies from that transaction, which means that there's fewer hands in the pie asking to get paid in that transaction. If I can use online decentralized futures exchanges uh and and eliminate a whole bunch of counterparty risk in that system um a lot of people don't need to get paid in that transaction. So the the consumer, the institution, the end users benefit enormously. Not to mention the fact that the liquidity basically uh grows that you have access to because the the US we have relatively efficient markets compared to the rest of the world, but it's a big planet, right? And so 75% of the the global population is shut out of the kind of efficient markets that we're used to dealing with. Crypto technology and digital asset technology is the great leveler in that regard. Okay. So that's kind of like you know uh part one. Part two is like the abra perspective is okay what does the bank of the future look like right and so okay I have I have kind of a a quasi um optimistic perspective and a dystopian perspective which says okay I know what's coming and I got to fix it [laughter] right so the optimistic perspective says okay decentralization technology is the future the internet is the ultimate decentralized system right because it's a network of networks that you can't shut down it was built to literally you know survive a nuclear for that was the whole idea of the internet. So now we have this decentralized network. We use it to watch movies, cat videos, all this crap. [laughter] What are we going to use it for in the future? Well, banking hasn't changed in 50 years. It still runs on the same main frames. As a matter of fact, they can't touch a lot of those systems because the people that design them are dead. >> So, so what crypto does is it decentralizes all of that. Now that actually solves a whole bunch of problems for the bank of the future, but it also I would say to a degree acts as an insurance policy on poor policy planning, poor government policy, uh you know, the fact that trust in financial institutions is at an all-time low. Like a lot of retail banks in this country have negative net promoter scores. Now, that that kind of defies the laws of physics because you shouldn't have a negative net promoter score. What that means in English is for every customer they sign up, they lose more customers because their reputation is so bad. >> Wow. >> Okay. So that's obviously unsustainable because you're literally spending money to shrink your business. [laughter] Okay. So, so what I'm saying is is that at some point this is going to break and I think we're at that point now, right? You know, when the government is buying its debt and interest rates are going up still, that's not supposed to happen. So we're at this kind of apex where I think something is breaking. And I think that these systems we're describing are going to pick up the pieces. And it's not going to be like, you know, oh, it just broke on Tuesday and we're here on Wednesday. It's going to it's like a gradual thing, you know, like when when you're boiling the proverbial frog in cold starting with cold water. People are not going to realize that all of a sudden it's an entirely new financial system, but it is happening. And as the old system breaks, I think we're very fortunate that we have this nextgen decentralization technology to pick up the pieces. >> Well, I'm certainly glad you said, "What am I going to do to fix it?" And you're not saying you're building a bunker build, but that gives me hope for sure. >> I think the two are the [laughter] two to be mutually exclusive. So, I could still have a bunker and still try to fix the world at the same time, but I don't have a bunker, so it's all good. >> So, exciting road ahead for you guys. You're here at the NYC today. No coincidence. You guys are planning to go public, I believe, later this year. >> That's right. >> Talk me through that journey. I mean, how are you approaching that? Exciting times. >> Yeah, this was a really Look, going public, as you know, is is is not an easy it's it's not a cakewalk process. Uh it's it's very complex process. It's very expensive process. But as we're forming kind of this this bank of the future visa be the discussion we just had it was really obvious to us that coming out of all of the the the trials and tribulations that our space has gone through whether it's other failed companies you know people bad actors um it's very difficult for the family office clients the institutions to know who to trust >> in our space which is ironic >> and and so what we consciously decided is okay, we're going to build this wealth management/bank platform of the future, but we have to instill as much trust in our clients as possible. And the way you do that ultimately is through ultimate transparency. And so public company, you know, filed to become an RAA, which no one in our space had really done before, and just really commit that, you know, we're going to do everything we can to to to give people the feeling that, okay, this company is legit. They're here to stay. They're committed to transparency. They have the right values. And if the future of banking is digital assets, that's a company I want to trust in the digital asset space. Well, you certainly have convinced me. Bill Eddie, thank you so much for joining us at NYC Wired. >> Thanks. Thanks for having us. >> I'm Jim Allen here at the Cube Studio at the New York Stock Exchange. This is Crypto Trailblazers, one of our segments with NYC Wired. Thanks for watching.