Twitter Spaces Transcript: Financializing Bitcoin with Laura Vidiella

Synopsis: 

Laura Vidiella, VP of BD & Strategy at LedgerPrime, joins Will Szamosszegi and Logan Chipkin to discuss financial products built on top of Bitcoin, and how finance is evolving to adapt to Bitcoin.

Link to Audio:

https://twitter.com/i/spaces/1djxXlaZPRExZ?s=20

Transcript:

Logan Chipkin (00:04:05):

Okay, great. Well, it's three o'clock on the dot, so we can go ahead and just get started with some casual introductions and then we can have our conversations. So welcome everyone to SA Mining's Twitter spaces. My name is Logan Chikin. I'm the writer and content manager at SaaS Mining SA Mining. We make Bitcoin mining accessible to retail customers, to everyday individuals and we use renewable energy sources. Now, a lot of our previous Twitter spaces work a lot about Bitcoin mining and renewable energy and that sort of thing. Today we're kind of going to approach Bitcoin from a different angle and talk about the financialization of Bitcoin with Laura Vi Ella who was kind enough to join us from Ledger Prime. So Laura, why don't you introduce yourself and maybe tell us a little bit about what you do at Ledger Prime?

Laura Vidiella (00:04:55):

Yeah, absolutely. Thank you for having me on today. So I am the VP of business development and Strategy at Ledger Prime. And I guess starting first with Ledger Prime we are a digital asset manager as well as Venture fund and we're mostly known for our involvement with crypto derivatives funded back in 2017. And yeah, we also provide liquidity across different CFI and DFI exchanges. We also provide structural products and overall we started off as a prop desk back in 2017 and things have changed a lot in the past five years, especially just cuz the nature of how crypto's changed. And from my site, before joining Ledger Prime, I was at Paradigm, the largest liquidity network for derivatives. And before Paradigm I started off my crypto career at Ledger X, which was the first regulated exchange in the US to trade Bitcoin options.

Logan Chipkin (00:06:06):

Great, thank you for that introduction. And before we continue, I want to bring Will up on stage. Will Sam Zeki is the CEO of SaaS Mining. Do you wanna introduce yourself?

Will Szamosszegi (00:06:19):

Yeah, thank you Logan. And yeah, Lauren Laura's actually been on the podcast so we've spoken before and we've spoken since then. So yeah, Laura, it's great to see you.

Laura Vidiella (00:06:30):

Great to be back online with you. Yeah, actually I think I mentioned this on LinkedIn, but this was the first podcast I ever did in crypto about I think two, three years ago. So really good to be back.

Will Szamosszegi (00:06:42):

Yeah, that was a lot of fun And yeah, that was a great episode, <laugh>.

Laura Vidiella (00:06:48):

Yeah.

Logan Chipkin (00:06:50):

So Laura, you've given us a nice introduction of what you do at Ledger Prime and what Ledger Prime does more generally. Now, as I kind of hinted at earlier the SA mining audience is generally more, let's say Bitcoin focus than cryptocurrency focus more generally. So what problem, if you knew that you were talking to a, let's say a Bitcoin only audience, how would you explain to them what problem ledger Prime solves in the Bitcoin ecosystem in particular?

Laura Vidiella (00:07:19):

Great question. I guess we can start off of how we started. We started with Prop capital and we were actually the first, pretty much the first market maker to make on a regulated platform in the US specifically Bitcoin options. So we were providing markets already from pretty early, pretty early, it was like 2017, so early in terms of long ago, but also early in, it was not that long ago. And that was kind of the first introduction to specifically US counterparties to Bitcoin options. Unless they did that directly through an OTC death, there was no other way to do it through an exchange. So in general, having a healthy options market, that also allows for a better growth overall of, in this case of Bitcoin, but overall of the market. So that is one of, I guess the specific positive things that we have brought to the Bitcoin community. And besides that, currently we do run one of the largest OTC desks by volume and Bitcoin is actually one of the assets that of course trades the most through our desk. So we continue to provide that liquidity in that market for counterparties, not even only on the Bitcoin side, but even most recently this past year, we've started also getting a bit more into the mining sector, either by helping miners through their treasury or just also looking also at how to price derivatives within the mining sector.

Logan Chipkin (00:08:58):

So do you find that your clientele who are interested in Bitcoin financial instruments, do they tend to be Bitcoin maximalist who just want to add variety to their Bitcoin diet or are they from the other side where they're just investors more generally and they are curious about this Bitcoin thing and want some exposure?

Laura Vidiella (00:09:21):

There's both actually. There's room for everyone <laugh>. So yeah, we do have counterpart that are Bitcoin only funds and their LPs are also pretty much just set bitcoins. So that's pretty much what they do. It's just increase the size of the portfolio and then there's others that is just part of diversification. Others use it more for hedging purposes. So you have a little bit of everything. Bitcoin of course, from the whole crypto industry is the most secure the safest asset to trade in that sense. So it is a very appealing asset, especially also for institutions or as more traditional institutions start trading on the crypto side, the first asset that they look into.

Logan Chipkin (00:10:14):

And do you ever have to sell your services to, you're probably familiar with the hot meme of course with Bitcoiners <affirmative>, so do you ever have to explain to them, Hey, you can hoddle your Bitcoin or you can play with certain financial instruments on top of Bitcoin that might be slightly riskier but also might offer a higher yield. Do you ever have to have that conversation with Bitcoiners?

Laura Vidiella (00:10:37):

Yeah, I mean Kai all is mostly the conversation I have. Our OTC desk is primarily derivatives, so being like 95% of what comes to a desk is a derivative. So that's actually part of the pitch. When of someone that has, or you speak with someone and they tell you that they have a large position and Bitcoin and they're not willing to sell it because they believe in the value long term. There are conversations too, Okay what's your plan? Are you just planning on buying spot slowly weekly or monthly? Or do you also wanna put your assets at work and maybe use very simple strategies or safe strategies that will allow you to generate yield on what you already have and just continue stacking that way. So there's that's a conversation that happens pretty often. I think here, one of the not issues, one of the challenges is that derivatives sound like it's a scary word for the general audience cuz it's not something that in general you just trade right away or just you think of, so there's not a lot of information or there's a bit of life education of how to safely use those, right.

(00:11:55):

So yeah, there's a big component on the sales page on what other things you can do and just putting together marketing material to set out to this counterparties or potential counterparties.

Logan Chipkin (00:12:09):

Yes you actually bring up a good point and maybe I'm assuming certain financial literacy that I shouldn't which is totally understandable. So maybe you could explain what exactly a derivative is. Cause it does seem like one of these terms that more people should know about but maybe don't. So why don't you go ahead and maybe even after that we can talk about other things like swaps and that sort of thing. But to start, what's a derivative?

Laura Vidiella (00:12:33):

So it's basically a financial contract between two or more parties, but mainly two parties. And I mean the word deriv deriving the value from a particular asset. And then there are more of, there are three levels of DURs I guess. Oh different contracts. The most popular ones are futures and options. And here with this kind of contract, what you're doing is agreeing on the price of the underlying in the future. I'm touching those two cuz they're the most common within also traditional space. But just touching briefly, a future, what is a future contract? A future contract is basically, let's say the price of Bitcoin today is 20,000. And then I think that by June next year it's gonna be 25,000 and you have some Bitcoin that you wanna sell and tell, but you don't wanna sell it right away. So I can tell her, Hey, I'll buy your Bitcoin at $25,000 in June next year.

(00:13:37):

Now if we get into speculation and you look at the price today that it's 20,000 and then June 25,000, if you think, okay, that's a fair price cuz either you think it's actually gonna be a little lower, you'll be able to cash it a bit like the difference, or maybe it's gonna be around that price you will agree on the contract, but maybe you just need the cash right now for some reason or you will use that to just buy more spot. So that would be a bit of what a future contract is. And the difference between them futures and options is that while a future contract, you have the obligation to execute that contract with an option, it gives you the option to either execute that contract or not thinking of the same mythology of a price in the future as the person that wants to buy that contract, instead of having to, instead of forcing me to buy the contract by during next year, I will pay you a premium today for you to hold that contract until next year and in June next year. And then by June I'll make a decision of the buyer as to whether I wanna execute or not. So there's a bit more to that, but just for a bit of basic lines on how those contracts work.

Logan Chipkin (00:14:55):

Okay, got it. And you were saying a future is one of the main kinds of derivatives and what was the other one? An option,

Laura Vidiella (00:15:01):

Options and then options from the option side, you have two kinds of contracts. One is what we call a call option and the other one what we call a put option. The call option gives the buyer the right but not the obligation to buy the contract at a future time. And the put option is the opposite gives the buyer the right but not the obligation to sell that contract at some point in the future at the price established or agreed upon day zero.

Logan Chipkin (00:15:37):

Okay. So one thing that I wanted to get into with you as well regarding Bitcoin based financial instruments is how your industry would expect to change, let's say once the world is on a Bitcoin standard. But it sounds like maybe the logic of the financial instruments themselves wouldn't change is that correct?

Laura Vidiella (00:16:01):

What do you mean With the logic of the financial instruments?

Logan Chipkin (00:16:04):

So right now, in other words, when you're explaining these financial instruments these future contracts options, that sort of thing, and you're talking about the price of Bitcoin, you're talking about let's say the price in terms of dollars or some other currency, correct?

Laura Vidiella (00:16:18):

<affirmative>. Yeah, exactly

Logan Chipkin (00:16:19):

Right. But then what happens when everything is priced in Bitcoin itself,

Laura Vidiella (00:16:24):

Right? Well that would be assuming an economies that bronze directly on Bitcoin. So now we're using as the basic so as a trading payer and a trading payer is just the asset against the, as you were just saying, the denominated currency at which you wanna buy or sell. Currently, most trading pairs are of course denominated in USD cuz that is the currency that the world is running on. So for that to change to Bitcoin and you see it all in a lot of exchanges, people just prefer to trade thinking of Bitcoin denominated because that's a currency they care about. So going back to the question, what would happen, it would mean that then we are running or we're living an economy that it's basically everyone thinks in terms of Bitcoin. Although I think if that ever happens which might happen we'll be more people would think more in stats and not in Bitcoin. Just cuz that would mean that the value of Bitcoin has appreciated so much that it takes over the value of the whole monetary monetary ecosystem right now.

Logan Chipkin (00:17:35):

Right, exactly. Okay. I guess, look, what I'm asking is could these contracts be expressed solely in terms of Bitcoin? They could, When I say Bitcoin, I'm including stats as well. I understand that.

Laura Vidiella (00:17:51):

Yeah. Yeah. I mean they could, but then it currently makes more sense to think it out as dollar price because you need to base it on another, you need to think about it in terms of what am I increasing? Right? <affirmative>? Yeah.

Logan Chipkin (00:18:10):

Right.

Laura Vidiella (00:18:11):

Okay. But then you would instead of, I don't know, then you would maybe have someone treating another asset and then it would be denominated in Bitcoin, if that makes sense.

Logan Chipkin (00:18:20):

Yeah, yeah. Like a basket of some generic. Exactly. Real estate, whatever. Yeah. Gotcha. So how have Bitcoin based financial instruments matured over the last few years? I mean, it sounds like one exciting new space for at least your team is Bitcoin mining, but how new is the Bitcoin proper stuff?

Laura Vidiella (00:18:41):

So there's been a lot, well, with the advancement from the ETF side, oh the past couple years, they have a bunch of ETFs approved and that allows for the more traditional, the more institutional account or counter party that doesn't wanna have direct exposure into the asset by holding it opens up the umbrella to all the different institutions and even just not institutions, but if it's listed on any of the other more traditional retail exchanges, individuals that do not want to hold the asset themselves now they can trade it directly through an ED ETF by investing in some of those funds. So that's a good one of the advancements. I think that as the options market also continues to mature, we're gonna see a lot more assets or a lot more new, more new instruments coming out

Logan Chipkin (00:19:38):

And I'm sure far more about different financial instruments than I do. So what kind of financial instruments that exist in the non Bitcoin space do you anticipate maybe porting into the Bitcoin space in the coming years?

Laura Vidiella (00:19:54):

I think we're gonna see more ETFs and then more structured products listed directly on exchanges where not only the crypto change but just the more traditional exchanges. We're gonna see individual individuals being able to just invest in these packages. Even if we think it from a bank perspective I'm not really sure how savings accounts work, for instance in the us but at least in Europe I'm pretty sure it's the same. But you can select from different packages and then you can build your own package and decide the exposure you want to different equities from different countries, different instruments. So I think that's gonna be, Bitcoin is definitely gonna be, and it's already in many, some banks are already operating it and also some pension funds as well. We're gonna see Bitcoin as one of the assets within their risk the more risky side of the portfolio. So unfortunately we don't have specific stats on that, but even a lot of the major banks in the US have been announcing adding those as part of their packages and we also have a major announcements as to they're gonna start even doing some custody.

Logan Chipkin (00:21:16):

So it sounds like this whole space is helping to normalize just the idea of using Bitcoin if not as you're, so your sole savings vehicle, at least it's becoming normalized as a savings vehicle it seems like. I don't see a lot of people giving your industry Laura credit for doing that. Do you think of it in those terms at all, or how do you see that?

Laura Vidiella (00:21:44):

That's nice <laugh>, but I don't know if it's credit. It's definitely, I do think that we could be doing a better job on, not on the marketing side, but yeah, on the marketing side there are all this desks and of course we work hard in striking all this partnership with different institutions, so this products can be available, but there's also a lot of part of us educating just the general audience and about what's out there and what you can do. And I think this is a wide issue within crypto in general, that of course it would be great to have more resources in terms of human capital to do all these things, but the number of people working on this, it's what it is right now. Yeah, so I wish more people knew about this and we could get more volumes, especially on the option side is likely the best way to generate some safe yields on Bitcoin, for instance, if that's what people are looking to do.

(00:22:48):

And yeah, hopefully we can change that. Currently we have options. Volume is about 0.4%, 0.5% of the whole volume in crypto. And that includes futures, perb spot, and of course options. But yeah, I think it's gonna start to change, especially as we have this packages starting with the wealthiest side of people in the banks. And then from there as those work, well, I think they will start to bring them down to more of a general audience. And if we actually look at numbers, for instance, if we look at the number of users at Coinbase has, I think last year they ended up, they finished and they finished the year at about 58 million or something like that. And this year they are already at a hundred million. And that's good because it does create this adoption and this spread of information, but there's a bit more to go besides the spot side.

Logan Chipkin (00:23:55):

Yeah, for sure. I mean it reminds me of, so at SAS mining, we're constantly kind of facing down the narrative that, let's say Bitcoin is bad for the environment, is bad for humanities, energy consumption, we're always fighting that battle. So I just see an interesting parallel on your side where people say like, Oh, Bitcoin can't ever be a store of value. And in the same way that we're saying, well look, actions speak louder than words and people are using Bitcoin mining and investing in that and it's actually good for the environment and energy for reasons X, Y, Z on your side, it's kind of like, okay, well you can say that Bitcoin's not a store value, but we have all these people using it as a store of value and using instruments X, Y, and Z. So I just wanted to note that interesting parallel,

Laura Vidiella (00:24:38):

Right? And you can even use it if it's a store of value, which we've seen many reasons why it is a sort of value. You can even use it as collateral for low in the future for if you're looking to well, maybe as more as the time goes, it's stabilizing more, but at some point you'll be able to use it as collateral for a mortgage for instance.

Logan Chipkin (00:25:01):

Yes, that would be very exciting. By the way lemme just pause here and say if anyone in the audience has any questions for either me or Laura feel free to raise your hand. Happy to answer some questions on this casual Friday. Now if no one has questions at the moment I wanna talk to you a little about Ledger Prime Labs. So I read a little bit about this, but I would love to learn more. So this is an arm of Ledger Prime that's looking to decentralize finance in much the same way that Bitcoin has decentralized money itself. So what exactly is Ledger Prime Labs and what has it been up to if?

Laura Vidiella (00:25:38):

Yeah, so we do a few different things. Ledger Prime Labs, one of them is more internally for our prop strategies. So we just build tools that will allow us to continue growing our portfolio in terms of, yeah, <inaudible> strategies. And there's another avenue which is that if anyone has Delta neutral strategy, and that means market neutral. So it performs, it's supposed to perform either well or just neutral in any market condition. They can pitch it to us. And then from there how our team will assess if it makes sense to include it in our strategies and we will find that strategy. And then the last one the third avenue, is we actually incubated an in-house defi protocol. It's called Fractal, Fractal Protocol. And it works in a few words, It works pretty much as a decentralized hedge fund. So you can deposit within the vault and then you basically get exposure to some of the strategies we run. Everything is transparent and you can deposit and withdraw funds anytime you want. So that is little bit of what Ledge Prime Labs is about. Yeah, hopefully, especially in the third avenue, we are working really hard on the protocol and we're hoping to, it's been performing really well and we're hoping to continue finding good talent to join on that side. And then just bring back to the people.

Logan Chipkin (00:27:16):

So in what way is Ledger Prime Labs different than traditional finance? Aside from the vehicles themselves being crypto based?

Laura Vidiella (00:27:28):

I think more like the third avenue, just trying to, with what we've learned we're opening that up so that the audience can also deposit and take exposure. And then also just opening up opportunities for other individuals, whether they are maybe grad students, they have a great idea or just an individual doing things at side that needs more capital to fund their strategies. They can also pitch them to us. So trying to help their, as much as they can. I'm sure there's a lot of traditional publics that also do the same thing, but at least I guess the main difference or is that, of course it's all digital assets and then yeah, we try to be as helpful and open as we can.

Logan Chipkin (00:28:16):

Got it. Very cool. Are you familiar with micro investing that was kind of hot a few years ago,

Laura Vidiella (00:28:23):

VEing? Yeah you can gimme a couple pointers. I give you my thoughts.

Logan Chipkin (00:28:28):

Yeah, yeah. Well I bring it up. So it was basically the idea that you could just and this is a fiat idea, but it was the idea that you could just send a small amount of money to some people in the developing world as an investment and they would use that investment to build businesses and so on. But you would require a lot less capital than you would in the western world. And I bring this up because you kind of reminded me of this, but the thing is with Bitcoin, you actually can do micro investing because you can send an arbitrarily small amount of SAT to anyone around the world. And I was wondering if Ledger Prime was at all thinking about this sort of thing.

Laura Vidiella (00:29:03):

<affirmative>, we are not fully invested in any similar project. We are actually trying to get more involved with what's called refi regenerative finance. And it's regenerative finance is basically bringing to defi projects that can actually help or reach, help reach the goals of the United Nation sustainable development goals. So that's something that we've been looking in. We've been investing also, most of the team, we're all from different parts of the world. So those are things that are pretty much embedded with us that we definitely wanna help and contribute with. We have invested in a few projects and for instance in Africa, we're looking a lot in also in Latin. But yeah, I don't think we've still been involved with any project that it's micro investing. But yeah, something very interesting for sure.

Logan Chipkin (00:30:04):

So let's talk about decentralized finance since you brought up, excuse it up, and we can broaden even beyond Bitcoin if that's possible. So if you had to explain to a beginner what the difference is, what the core difference is between decentralized finance and traditional finance, what would that be?

Laura Vidiella (00:30:24):

<affirmative>, The number one difference is we're democratizing finance here we are making a universal access to markets. And that's what brought me more into crypto. And also what brought me more into starting for instance, a ledger X cause ledge rx, his ledge Rx allowed to trade as small as a contract size as 0.01 btc. And that's when we launched a retail platform. And well this right now might sound like a lot back then that was when the price was between 5,000 and $10,000. So a contract was anywhere between 50 to, well the notional was anywhere between 50 to a hundred dollars, but the premiums were anywhere from cents to a couple dollars sometimes. So allowing basically the general audience to have access to all the same products that only institutional institutional accounts or high network individuals have access to. And I think that's something that has only, it's only fair cuz you might not have 2 million your bank account, but enough to be able to trade those as much as someone that has that much income.

(00:31:41):

So by allowing this open access to everyone, you're basically opening up to equal opportunity. And I think that is the main difference here between tar finance and essential finance and what we're trying to do in Defi. And not only that, but before, one more thing for instance is even in the US or in Europe it's really hard sometimes to open up a bank account. There's a lot of requirements long list that can make this almost impossible to open up one. So with crypto, with Defi, you're able to basically even bring the bank to your phone with the wallet or with any quick system that counterparties all kind of same counterparts. I mean there's just two regular people, the two of us can just send money to each other without the need of opening a bank account. You can even pay people, you could hire someone, just pay them directly with a stable coin directly to the phone wallet without the need of opening a bank account. And then you are allowing for this fin to start this financial freedom for anyone at any level.

Logan Chipkin (00:32:45):

It's definitely extremely exciting and beautiful and liberatory in a way. So <affirmative>, I wonder, as I hinted at earlier, we faced our fair share of critics for Bitcoin mining. Let's say, what are the kind of most common criticisms that Defi gets and then how do you usually rebut them?

Laura Vidiella (00:33:05):

Yeah, I think the most common one is it's probably money laundering for instance, or just any sort of illegal activity that could be done thanks to Defi. And with that, I mean thanks to any cryptocurrency in general. And if you actually look at actual official data, I think it was published by the UN even I think about one or 2% of all the money in circulation that includes all the currencies. About 2% of all that casual circulation is actually used for illegal activities. If we move it to crypto, the percentage is much smaller below 1%, I think it's like 0.1, 0.2, something really, really much, much smaller. So that is probably the main one that of course it's using currency that is basically built on a blockchain. So all the average transac is transparent. It can be back trades unless you use a very private currency.

(00:34:08):

But yeah, so that's the number one. The I guess drawback or complaint that I hear about defi. Others, it's more on the, because you're allowing access to all this different products that are generally only traded by either investors or people with a bigger financial background. You are you're actually getting people in trouble by pretty much losing their money but just gambling it away. And my response to this is, yes, they're right, but it's also our job to provide these people with tools. If I'm gonna launch a product that I think that could be a little risky, it's my job to provide the tools and the understanding for the trader to know what they're doing. As long as someone that is building a tool or a product provides this information, I think that that's up to the trader in the end, or the investor in the end up to them. They wanna read the pros and cons of using that product. So yeah, those are the number top two things that I hear.

Logan Chipkin (00:35:22):

Wow. Yeah, to me those are very lame criticisms. Okay, well because you could just say that about literally anything. Oh, criminals use phones, so people, no one should have a phone. And then the second one is risk exists, but that's true of everything. That means no one could ever buy a house cuz there could be a housing crash.

Laura Vidiella (00:35:43):

Right, Exactly. Well, and just moving it I guess is something more a of a hot topic today with Iam Musk taking over Twitter and just looks like he's gonna bring back all the band accounts. Yeah, some people are not happy with that cuz they think that they were banned for a reason. But I, I think it's up to the reader to decide whether they wanna read that tweet or not. Right.

Logan Chipkin (00:36:08):

Oh, that's what I would think. But people are freaking out. I mean that's kind of a whole other discussion. But I mean actually I'm kind of curious because I'm very curious about if it's not obvious by now kind of the cultural and narrative wars that go on around Bitcoin and Defi and this sort of thing. So regarding something like the Elon Musk purchase of Twitter just this week and he's clearing house. And feel free not to answer if you're not comfortable, but how are people in the defi community, how do they feel about that sort of thing? Do they tend to be for free speech and open inquiry or do they not like it when people say things they don't like?

Laura Vidiella (00:36:48):

No, I think I wanna say most people are, at least in the defi community, they're pretty much free speech of course of, I think it's more about, I do agree that there's things that even Musk consult has said that I think they're dangerous and we should protect the users somehow. But at the same time, I don't think that banning and completely, or just moving someone from the equation is the right way to go. I don't think that's at least a productive conversation if we think of anything from a producty conversation point of view. But no, I think most of them are pretty open and in the end if you don't, someone's voice just muted and continue on. But if we want a give as much as it might hurt or it might be a little bit controversial, if we wanna give universal access, then everything should be kind of open and then you can choose where you wanna consume your your content. Yeah,

Logan Chipkin (00:37:54):

Yeah. You're not going to get an argument from me there. So what are the political challenges facing defi in general? Maybe it's different from country to country, but I guess from your perspective, what are the kind of governmental political challenges facing your industry?

Laura Vidiella (00:38:11):

Exactly. I was gonna say the main concern here I think is just regulatory. And then from a regular perspective, and I think the US has been pretty clear with this as well or of clear, but from a regular perspective with Defi, the issue is that you don't know one side of the counterparty. Say think about a lending protocol as the borrower. While as the lender you wanna know who the borrower is in case the borrower defaults, you can start any action after him. And that is what regulators are trying to do. They're trying to protect, in this case in specific, they would be trying to protect the lender so that if anything happened, they know who to pick up the phone and call. So I think that's why many governments or looking more forward towards a permission protocol, something like, let's say for instance, Maple Finance, before they start a pool with a new borrower, the borrower, borrower goes through a very strict auditing process and then once that's approved, they're able to start the landing pool and they can borrow from any of the lenders in the pool. Right? I think that is the number one concern, at least on the defi side, once that is fixed or there's more clarity around that yeah, I think there's gonna be a lot more development and a lot more investment coming into defi. But as long as

Logan Chipkin (00:39:55):

Mm-hmm. <affirmative>, well I'm, So you're saying it regulators might make it illegal for anonymous people to lend money

Laura Vidiella (00:40:03):

Not to lend but to borrow.

Logan Chipkin (00:40:05):

Okay. I don't know.

Laura Vidiella (00:40:08):

Cause that's where the counterparty default comes if the bar cannot return the capital. So what they wanna protect is the counterparty risk here from defaulting and not knowing. Cuz if you don't know who it is, then <affirmative>, you can't start any action to get the funds back.

Logan Chipkin (00:40:26):

Sure. But couldn't that just be kind of written in the contract? In other words, if the lender is or sorry, I keep forgetting lender or borrower, but whatever, if one of the parties is anonymous, but the other party accepts that the other party is anonymous, why should that be illegal?

Laura Vidiella (00:40:45):

That is, again, from a regular perspective, they're seeing it as they are protecting the lender. In this case, if we go back, they're trying to protect the situation from a new 2008 momentum or crisis. So in their mind it's, especially as you have the big banks coming into Defi, there's no large bank that would ever lend to someone they didn't know who that person is Right Now, if there was a way for the borrower to stay anonymous, but you can still see their records somehow there's some sort of audit maybe that can be solved in a different way. But I'm pretty sure I'm pretty, and again, my preference or my view view on this is that you can put old laws with new technology. So we need to update the current laws for this new technology. But that's the mind of the regulator right now where they're just viewing it as like, okay, what is the easiest in person that I can do to protect the counterparty, in this case, the lender from not getting their funds back. And it's by knowing who the borrower is, doesn't matter who the lender is, but at least the borrower. Yeah,

Logan Chipkin (00:42:03):

No, I understand that and I appreciate that you're providing the regulators perspective and not necessarily your own. That's totally fair. I guess it's hard for me not, it just seems like the regulators are just, and then you don't have to agree with me obviously, but just seems like they're reducing consumers choices arbitrarily. Yeah, but

Laura Vidiella (00:42:24):

No, no, I mean it is definitely a value point of view. I do think that there's always a solution for everything and there's probably something out there that we haven't thought about <affirmative> that could be presented to a regular that they like, but as it is currently, it's not something that they'd be comfortable with, comfortable with.

Logan Chipkin (00:42:43):

So would they be comfortable with pseudonymous training, borrow and lending? Well, which is way more realistic nowadays. I mean, being pseudonymous is almost normal these days, you know what I mean? A lot of the biggest Twitter accounts, literally no one knows who they are. With cryptocurrencies, you can have a public address and people know is that something that regulators might be sympathetic to or that's too much for them?

Laura Vidiella (00:43:06):

Right? No, I mean there could be a world where maybe think it's actually, think about it this way, maybe they allow for a certain percentage of your exposure to be invested in a very anonymized ecosystem. So that could be but just setting a few limits here and there that could happen. But other than that, at least I don't think in countries, the US or in any European country, this would be allowed, We would have to go to any of the offshore locations. Yeah,

Logan Chipkin (00:43:49):

<affirmative>. Got it. And do you think that with the rise of defi, do you think that makes Bitcoin stand out? Does that distinguish Bitcoin more from its competitors in light people's eyes or does that blur the lines even more from Bitcoin and every other cryptocurrency?

Laura Vidiella (00:44:13):

No, I think that it, it's a good question if you look, because I'm thinking about it also from what happens on a derivatives perspective, definitely, of course Bitcoin is the largest asset traded as opposed to the other digital assets. But no, I think if anything Defi allows for more people to have access to Bitcoin. But then because of defi, there's also, if you think about it from a return perspective Bitcoin is less riskier or volatile than other assets. So for those that are less risk averse, but for those that wanna take more of a riskier position, they will likely just because of they have avenues to trade other assets. So they would end up treating other assets. That said, this is kind of how what's your exposure to risk that you wanna have? I still think that at least for someone that's getting started in Defi or in crypto in general, you do wanna have larger weight on Bitcoin in your portfolio.

(00:45:23):

And then maybe as you get more comfortable with it, you still want Bitcoin to be maybe your largest position to use it. Again a store of value. But you can also play around with other assets. Cuz in the end, if you are really long Bitcoin and your strategy is to just increase your size, not only you can use options or other derivatives to increase that size, but you can use the trading with other currencies to pour it back to Bitcoin down the line. And this happens a lot at the switch between, from bold market to a bear market, A lot of the, just to keep it in crypto, you have a lot of investors that end up selling their out into Bitcoin again.

Logan Chipkin (00:46:09):

And do you find that when clients do sell their A to Bitcoin, in other words, I kind of feel like all roads ultimately lead to Bitcoin. Do you see that in your daily experience or not necessarily?

Laura Vidiella (00:46:22):

Yeah, so this year up until October, cuz last month was the Ethere emerge, right? But up until October there was a lot of from our desk also a lot of al activity and most recently has switched more towards just Bitcoin, Ethereum a bit of alt as well. But yeah, mainly and volumes, this one has been pretty good, but it's, yeah, switch switched more towards only Bitcoin, Ethereum. So we definitely see that.

Logan Chipkin (00:46:55):

And one of the last things I wanted to ask you about depending on time of course is I've been thinking a lot about the future of Bitcoin banks. Now I understand you're in Defi, it's slightly different but have you given any thought to what a world of Bitcoin based banks might look like and how that might interface with let's say ledger prime and the defi institutions?

Laura Vidiella (00:47:21):

<affirmative>? I haven't given a lot of thought, but that back to your first question we would need to have an economy and that can be either from a city, so it could be a micro economy or it could be a small country or anything. Think of El Salvador for instance. That is everything is like Biko denominated and that's the reason why it would run through Bitcoin. But now that you mentioned this, it reminds me really well I guess they're not a startup anymore, but there's a crypto company in LA called Lemon. And they were telling me, actually they have about 2 million users or more at this point, but they were telling me that their market is Argentina and Brazil and a lot of their, their users, what they do when they get the paycheck is they automatically convert it into Bitcoin or Ethereum <affirmative>. And at first they thought it was going to be stables justified inflation, but they actually converted directly into Bitcoin, Ethereum, I don't know what's the split between the two of them.

(00:48:30):

But then they have a lemon debit card and they use that debit card to pay for anything from rent to restaurants to anything you can think of. And of course at the moment of execution the bitcoin or that they hold in the account, it's sold for the local currency to pay for those expenses. So with that, they of course they're working on also offering Bitcoin based products <inaudible> based products, just to increase that portfolio. And then when it comes to an institution like us, in this case the way we would work with banks the similar banks, this would be just by for instance, providing liquidity for some of these packages that they are managing. Or we could even, they have a landing desk and we need to borrow for our operations, we could just borrow directly from them. So yeah, that could be, that's actually something very interesting that I think and countries with really high inflation is just by nature switching to that. And in a way it's beautiful to see because we're opening this local people, the opportunity to just be able to not only have a more stable currency that they can rely on, but the currency that it's actually value that down the line it would hopefully bring them back to a more stabilized economy.

Logan Chipkin (00:49:55):

Completely agreed. You made me think of a couple things. One is that this higher level technology that I kind of think of it as a universal language converter, but for money where people get rid of their fiat and then when they accept money, when they accept fiat, they convert it instantly to Bitcoin or in principle and other cryptocurrency, I think the better that technology gets even easier, it'll be for everyone to just be using Bitcoin as a store value. So that's extremely exciting. And then the other thing you reminded me of is it just sounds like the more mature your industry gets, the more ready a Bitcoin based economy, including banks will be <affirmative> once the time comes, which is awesome.

Laura Vidiella (00:50:41):

Exactly. Yeah, exactly. Cause we are pretty much what, not us, but the whole us and everyone else in our sector of the crypto we're like the backbone to sustain this infrastructure. But also it's also important not to build it the same way that the traditional world is built cuz then we're just pretty much doing the same thing but with a different asset class and yeah, that's something to avoid if possible.

Logan Chipkin (00:51:12):

Yes, absolutely. Well Laura you answered all of my questions with depth and clarity. I must admit it was very impressive cuz I was coming at you hard and fast. So I appreciate that

Laura Vidiella (00:51:23):

<laugh>. Thank you.

Logan Chipkin (00:51:24):

Yeah, yeah. So does anyone have any questions for either Laura or myself? Feel free to ask in our last 12 minutes or so.

Will Szamosszegi (00:51:32):

Yeah, I'm gonna ask a question that's kind of a change of pace here. Going back to the actual financial instruments, and I remember last time we talked Laura, it was a much different market and I'm just curious as to where you see the total industry today in terms of these products and what companies can benefit from those products. Of course on the mining side, I think that inevitably you're gonna see minors benefit from this but I'm just curious as to what you see this industry evolving into. And <affirmative> in your answer I, I'd also be very curious in regards to pricing just because at the end of the day, these give you additional levers that you can pull to run your company, to run your mining company to run whatever type of treasury management strategy you want to run. And I think that the pricing portion is something that many people don't know about and I myself am curious about.

(00:52:35):

And the final caveat I'll put on that in this very long winded question here is that I remember early on, especially when these types of instruments, options and futures and these types of things got put in place and made available to larger institutions when these first came out I just remember talking with some people and them explaining that it was just extremely expensive to use these types of products <affirmative>. And I'm assuming that the costs have come down significantly but yeah, go about answering that however you'd like. I know that there are a lot of pieces

Laura Vidiella (00:53:13):

There. No worries. Yeah, so when we, last time we talked, that was also, that was right before the beginning of this past bull bull market and that was a summer where vaults were absolutely dead and there was really not much happening on the deriv side. But while it's changed from, there's way better infrastructure to support also what we do now back then after exchanges was pretty much CME Ledger X and dbi. And now then shortly after bid.com, which it's an Asian exchange also launched and now there's another exchange launching in Europe. So there's more people just trying to build newer and better infrastructure. But besides that, you also have Paradigm which has allowed for very fast execution and great pricing for large block trades. And I think they were actually one of the reasons why this better pricing accelerated, right? Because they brought adoption by bringing just really easy tool for large counter parties to place large trades.

(00:54:30):

And that just made everyone more excited about being able to trade this. So pricing yeah, that was two years ago or so pricing was definitely a lot wider and market makers were benefiting quite a bit from that. Now, specifically for Bitcoin, Ethereum it's pretty the spread is a lot tighter and it's a lot harder of course for the market maker there to make as much as we used to do a few years ago. But if anything that's good. If anything that encourages more trading and more transfer in trading and yeah, well now I guess where the spread is with all the alts cuz there's no actual market for that. There's not a liquid exchange like DBE for that. But it's gonna be pretty exciting. I mean lead regs is now ftx US derivatives and the FTX US team, they suggested a new margin model that it's supposed to be better than the current one with the CME model.

(00:55:43):

The CME model is pretty much, you don't trade directly on cme, but you do it directly through an fcm, which is a third party where it's an interface as well that afterwards gonna be cleared on cme. But because of this model, the margin that you are allowed is it's not that great. I think it was 2.4 or something like that. So it makes it very expensive for market makers to quote there. So that's an example of a market where it's still very expensive on FD two zero it is, it's also still very expensive because they don't have margin yet. So everything is fully collateralized and those are things that impact the price cuz the market maker has to lock up too much capital there. So now once the new margin model is approved, that means that US counterparties will be able to also trade at a better price. But for now, for anyone that can trade offshore, which is a lot of counterparties literally 95% of the volume on the option side they get for Bitcoin and they get really good prices. And that also allows to for companies like ours to develop structure products and also even price on Defi way cheaper than we were before.

(00:57:04):

So

Will Szamosszegi (00:57:04):

It also spills

Laura Vidiella (00:57:05):

The retail. Yeah, it also spill India. It also spills to the retail counterparty that traces directly on Defi cuz we're able to make better markets cuz of the adoption on these other platforms.

Will Szamosszegi (00:57:19):

So if I give you a hypothetical company, let's say that you're running a mining company and you're trying to utilize these products or maybe if you wanna give an example without necessarily having to give a name of mm-hmm <affirmative>, how a minors use, how a minor is used one of these types of products in the past to mm-hmm <affirmative> benefit their business. What's an example that you've seen popular amongst the mining community?

Laura Vidiella (00:57:45):

Very interesting one cuz there's new things coming also for the mining community. But up until now

Will Szamosszegi (00:57:50):

And feel free to give us sneak peeks as well about stuff that's coming up if you can

Laura Vidiella (00:57:54):

<laugh>. Amazing <laugh>. But yeah, so on the mining side there's two ways. One, the classic one is just what do miners do with their Bitcoin rewards? And some of them they either reinvested or others, they just sell it right away spot to just cover their operations or even pay back any loan that they got from for building the mining facility. But for those that have some extra treasury, you can just run a very basic instance like color writing strategy. So basically what you're doing, and going back to when I was explaining a little bit about options earlier as the call of a writing strategy is basically I sell the contract to the buyer and then the premium that the buyer pays me for holding that contract into the future is the yield that I generate. Now if you sell this contract to a high enough of a strike price, the strike price is the price that we agreed on selling the contract.

(00:58:53):

If it's high enough where I know that a day of expiration the price of Bitcoin won't be at that price, then the buyer won't execute the contract. I get to keep my Bitcoin and I get to also cash on this premium and I get to compound it into another contract into the future. So that is a basic, very, very basic one that from a project perspective that banners do. Another way as well is sometimes anyone that wants to start a new facility, they get a loan which is Bitcoin denominated because they get it in Bitcoin and they wanna keep the notional of the amount that they got within a specific range. So let's say that all the Bitcoin they got adds up to a million and because of how much the price of Bitcoin can vary within time, you wanna make sure that that price is keep within a certain range.

(00:59:49):

So we help them also keep it within that range so they can run their operations normally. And most popular one the past few months that a few big names and desks we've been speaking and trying to figure out is hash power derivatives or hash derivatives. And yeah, that is pretty much just to help mins with their operations or even just help that investor or that individual that cannot afford to buy the equipment, but they wanna still have some exposure by buying hash power cuz they think that it will convert into buying cheaper Bitcoin in the end. So yeah, there's a bunch of platforms coming up. I would keep an eye I dunno if I can name them right now, but if I can I'll definitely ping you guys and have you add it also somewhere in the tweet. But yeah, there's really, really cool stuff.

Will Szamosszegi (01:00:52):

Yeah, incredible. I remember when I first heard about that college strategy, it was the first one that you mentioned it, it's very interesting. It took me a little while to wrap my head around, but if I try and simplify it, you can work with a company that can help you run this strategy and very simply put it'll, it'll help you continue managing your treasury and earning some yield, but you're capping your downside and your upside. So you're basically looking at having Bitcoin within a price band and being able to continuously earn safer yield on that through this college strategy. Is that correct? Yeah,

Laura Vidiella (01:01:37):

Exactly. Exactly. So in the end, the goal is to,

Will Szamosszegi (01:01:40):

But it was interesting hearing you explain the mechanics of it, <laugh>. Yeah. Cause I remember they explained the mechanics of it to me a while ago and I was just it took me a while to wrap my head around, but the way that I was just thinking about it was like, okay, you're basically, you have a band and Bitcoin's price will sit within that and you'll earn some yield and then you'll just reexecute the band if the price starts going outside of that.

Laura Vidiella (01:02:08):

Yeah, exactly. Yeah, no, the power compounding is incredible. There's actually qcp Capital, which is another OTC desk they put together or they released this week nice newsletter where they actually show how running very simple option strategies week to week, it compounded to really nice returns. So all across any asset class, whether it is traditional or whether is in crypto, of course has shown bad returns this year. Probably things like one of the worst years in history. But if you look at crypto options specifically, and this was all run through just using Bitcoin crypto options have been one of the best ways to monetize in your portfolio this year. And even just by running very simple strategies. So definitely a nice read the reading and they actually show for different levels of risk. What would the return have been through running just a whole year of top testing.

Will Szamosszegi (01:03:17):

And the one piece that I, I'd regret it if I didn't get this question in cuz it's something that I've been trying to learn a lot more about as a minor is what you talked about regarding the hash rate marketplace <affirmative> or is it a derivative, like a rate derivatives marketplace where yeah there's volume. I'm just curious because I know a company as well that that's working on something like this and they're in early stages of testing and we don't have to say any names, but I'd love to hear your take on the explanation of how you see that market today and how you see that market developing given you <affirmative>. I mean you've been through it early on and the other products, these other instruments and we're in the very early stages of seeing it on the hash rate side. So yeah we'd just love to hear your take on that.

Laura Vidiella (01:04:15):

It's still very early, so even from our side we're working, I think we're think of the same company, but yeah, we're starting to work together with them to understand what's the best way to price this. And in the end, any market at the beginning there has to be, a lot of it's the price discovery process is a lot heavier. So there has to be a lot of open and transparency between both counterparties, which might not be ideal cuz you don't wanna give away your edge as a market maker, but sometimes you need at least one person in the middle as well to just a bit of the negotiation between both sides to just build this market in and figure out how to price it. But from, at least from a market maker perspective, we wanna make markets on something that we can hedge. So meaning someone, something that we can take the opposite direction to make sure that if the market moves we're not gonna go out of business. So also the challenge for us is finding how we can hedge the derivative in this case. But yeah, I guess it's still very, very early, but I think that, well that's a good thing of a bear market is that it gives you more time to work with partners to figure this out. But I think that by end of this year, beginning of next year, we're gonna have a pretty pretty solid market for where it is right now. At least as far as I know, a lot of the biggest desks are all involved in trying to figure out how to create this market.

Will Szamosszegi (01:05:51):

Yeah, it's gonna be interesting to see not only just how this marketplace how it develops mean, my prediction would be that you'll see kind of a similar type of trajectory where right now early stages, you're gonna be probably looking at high much higher price points on those contracts versus 10 years down the line. I think that they're gonna get a lot cheaper over time, which is just natural. I guess that's not really too much of a prediction there, but in terms of the actual maturation of the industry, I think that the mining side's really interesting because you've seen in every cycle how the industry has just gotten so much more sophisticated. Yeah, I mean you're talking about an industry where people are mining tons of bitcoin, whole Bitcoin with a laptop to all of a sudden having specialized computer equipment to having these data centers, to having these extremely well run sophisticated data centers to now mines having to really pay attention to how they're managing balance sheet and almost becoming a treasury management financial institution of sorts.

(01:07:03):

And I mean these products that are coming out and the markets that are developing around that is just so fascinating to see where, I mean in terms of long term predictions on my end regarding mining, I think that you're gonna see these in the next bull run and then the one after that and after these multiple havings just you're gonna see minors that are so much more sophisticated around all these different levers. <affirmative> really having to protect their downside risk because you look at what's happening in the market today and it's chaos. I mean the news with war yesterday and the bankruptcies in filings that have come in the proceeding month is wild to see. And I mean during a huge bull market, you're not capturing as much upside if you're going and you're protecting the downside. But I think that all the large miners and the ones that make it through this, and especially the management teams that you see running these companies that might have been on the wrong side of the market in this particular downturn it's gonna be a very strong lesson that I think you're gonna see taken into the future.

(01:08:15):

And it'll be crazy to see how all this plays out.

Laura Vidiella (01:08:21):

I think it's funny cuz I think we had a very similar conversation a couple years ago about this, where during bull markets also, and this is the case, if any minor is listening I'm happy to have a conversation later. But during both, I

Will Szamosszegi (01:08:38):

See a couple of us there <laugh>.

Laura Vidiella (01:08:40):

So nobody wants to hedge or trade options cuz the way they see it is, well, but market is going up, so why would I do that? But the truth is, if last year they had even, so the a hundred thousand strike price options, they would've gotten return of 20% I think, something like that. So imagine if they had that 20% to cover operations right now in the bear market. So those are things that, and it's hard to blame, right? Because again, it goes back to all this education that it's missing, that it's just too many things to learn at once. And it's really hard. We're all trying our best. But if for the next bull market, or even now if there's any treasury sitting around that little annualized deal that you can make, it could actually go, it could go miles and can even if it's just something small and you choose a really far away strike from the current spot price, something that can be done that yeah, that could definitely help.

Will Szamosszegi (01:09:41):

Yeah, it's it, it's crazy seeing how dangerous, especially in such a volatile market leverage can be taken on too much debt, things like that. And the market in especially I think in mining is the great equalizer in many ways. And we're seeing companies lose tremendous amounts of value in this cycle. And we've seen it in previous cycles too, where you had companies that were seen as very large companies, a couple bad decisions or a couple like it deciding to take on debt with mining can be extremely dangerous. So I mean, myself have started paying more and more attention to these types of products and it's awesome to get to speak with people like you and learn about it and bounce these ideas off one another. Yeah, I mean myself just in the past 15 minutes talking to you about this, I, I've got a lot to think about myself.

Laura Vidiella (01:10:38):

Well that's really happy to hear <laugh> good. But yeah, I think one of the things we're gonna start doing from our side is also just creating better content, especially on the mining side. So yeah, just keep an eye and we're always happy to have any conversation. Doesn't have to lead to anything, but if there's anything we can help with we're here for that.

Logan Chipkin (01:11:01):

Thanks Laura. Yeah, that sounds very exciting. We'll definitely be on the lookout for that and I'm sure we'll talk again. So Laura, thank you very much for your time and thanks to the audience very much for listening. I'm sure you learned a lot as Will and I certainly did. Just a friendly reminder that next week we'll have our Twitter spaces at the usual time. Thursday at three 30 we'll be speaking with NEMA about solar batteries and Bitcoin mining. So that'll be pretty interesting. I dunno if you saw his episode with Peter McCormack, but it was very cool. And of course you can follow us on Twitter at SA Mining and you can follow Laura Vi as well at Laura Vi. And if you miss part of this conversation, don't worry, the recording will be available and we'll upload the transcript to the SaaS mining blog as soon as possible. And with that, thank you everyone very much and have a great weekend.

Speaker 5 (01:11:52):

Thank you guys, have a good weekend.

Will Szamosszegi (01:11:54):

Thanks Laura.

Speaker 5 (01:11:56):

Thanks.

Logan Chipkin (01:11:56):

Thanks. Take care. Bye.

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